Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>On 15 December, <a href="https://www.smartkarma.com/entities/idemitsu-kosan-co-ltd" target="_blank" data-smartkarma-citation="entities:109:1" rel="noopener">Idemitsu Kosan (5019 JP)</a> launched a Tender Offer for subsidiary <a href="https://www.smartkarma.com/entities/toa-oil-co-ltd" target="_blank" data-smartkarma-citation="entities:11021:1" rel="noopener">Toa Oil Co Ltd (5008 JP)</a> at what was an extraordinarily opportunistic price - JPY 2450/share.</p><p>Some might call this price insultingly low.</p><p>It was apparently deemed "fair" because the non-arms' length contract signed with the parent (and Tender Offeror) provides for an exceptionally low ROA, and the next few years involves some shutdowns for longer-term maintenance, which will lower FCF. </p><p>This pricing process fairness problem was discussed in some detail in <a href="https://www.smartkarma.com/insights/idemitsu-launches-lowball-tender-offer-for-subsidiary-toa-oil-5008" target="_blank" data-smartkarma-citation="insights:46384" rel="noopener">Idemitsu Launches Lowball Tender Offer for Subsidiary Toa Oil (5008)</a>. </p><p>There have been a few developments since the announcement.</p><ul><li>Just prior to the offer being made, large shareholder Cornwall Capital had been increasing their stake and coincidentally announced an increased stake of 18.22% on the same day as the announcement. Since the offer has been made, they have filed two more amendments to quantity to lift their stake to 20.83% as of 24 December (reported 4 January). As seen from the chart, the shares have not traded below terms since they first freely traded pre-announcement, and Cornwall increased their stake by 2.6+% from 15-Dec to 24-Dec 2020 at prices ABOVE terms.</li></ul><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/182/218/original/Screenshot+2021-01-13+at+12.28.45+PM.png?1610512414" class="editor-image img-responsive" data-smartkarma-image-id="182218"></figure></section><ul>
<li>Since the 25th of December, another 5% of shares out have traded at prices above terms. Nobody else has yet announced a 5+% position. </li>
<li>Around year-end, specialty "business-politics" magazine <em>Sentaku</em> published an article talking about the oil refining business in Japan, JXTG/ENEOS's leading place in it, the Idemitsu deal for Toa which was termed odd, <a href="https://www.smartkarma.com/entities/fuji-oil-co-ltd" target="_blank" data-smartkarma-citation="entities:12970:1" rel="noopener">Fuji Oil Co Ltd (5017 JP)</a>, <a href="https://www.smartkarma.com/entities/cosmo-energy-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:26565:1" rel="noopener">Cosmo Energy Holdings (5021 JP)</a>, <em>and some speculation about what might be behind the Idemitsu deal for Toa. The conclusions of the article in that regard are striking. </em>
</li>
</ul><div class="content-highlight">
<p>In the meantime, after a single day limit up ending below terms which saw 20,400 shares trade, the next 1.46mm shares (11.8% of shares out) have all traded above terms.</p>
<p>If one adds the 20.8% held by Cornwall Capital (including the 2.6% purchased above terms since announcement) plus the 9.2% which have traded above terms <em>not</em> purchased by Cornwall, that gets one to 30.4%, which is reasonably close to a blocking stake. </p>
</div><p>Discussion continues below.</p>

On 15 December, Idemitsu Kosan (5019 JP) launched a Tender Offer for subsidiary Toa Oil Co Ltd (5008 JP) at what was an extraordinarily opportunistic price - JPY 2450/share.Some might call this price insultingly low.It was apparently deemed "fair" because the non-arms' length contract signed with the parent (and Tender Offeror) provides for an exceptionally low ROA, and the next few years involves some shutdowns for longer-term maintenance, which will lower FCF. This pricing process fairness problem was discussed in some detail in Idemitsu Launches Lowball Tender Offer for Subsidiary Toa Oil (5008). There have been a few developments since the announcement.Just prior to the offer being made, large shareholder Cornwall Capital had been increasing their stake and coincidentally announced an increased stake of 18.22% on the same day as the announcement. Since the offer has been made, they have filed two more amendments to quantity to lift their stake to 20.83% as of 24 December (reported 4 January). As seen from the chart, the shares have not traded below terms since they first freely traded pre-announcement, and Cornwall increased their stake by 2.6+% from 15-Dec to 24-Dec 2020 at prices ABOVE terms.
Since the 25th of December, another 5% of shares out have traded at prices above terms. Nobody else has yet announced a 5+% position. 
Around year-end, specialty "business-politics" magazine Sentaku published an article talking about the oil refining business in Japan, JXTG/ENEOS's leading place in it, the Idemitsu deal for Toa which was termed odd, Fuji Oil Co Ltd (5017 JP), Cosmo Energy Holdings (5021 JP), and some speculation about what might be behind the Idemitsu deal for Toa. The conclusions of the article in that regard are striking. 


In the meantime, after a single day limit up ending below terms which saw 20,400 shares trade, the next 1.46mm shares (11.8% of shares out) have all traded above terms.
If one adds the 20.8% held by Cornwall Capital (including the 2.6% purchased above terms since announcement) plus the 9.2% which have traded above terms not purchased by Cornwall, that gets one to 30.4%, which is reasonably close to a blocking stake. 
Discussion continues below.

Toa Oil (5008) Tender Offer Update - Looks Bumpity.

<p>When one looks upon the landscape of Japan's oil refineries - a delightful vista of 20th century industrialisation being left by the wayside in the move to EVs, solar power, "green" investment, etc, one small refinery stands out - the Keihin refinery of <a href="https://www.smartkarma.com/entities/toa-oil-co-ltd" target="_blank" data-smartkarma-citation="entities:11021:1" rel="noopener">Toa Oil Co Ltd (5008 JP)</a>. </p>
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</section>
<p>Toa Oil's Keihin Refinery has a Nelson Complexity Index higher than any other refinery in Japan to my knowledge (the Nelson Complexity Index provides a measure of the ability of a refinery to process inputs into lighter product. The lighter the end product, the higher the complexity score on that particular line/output (crude goes into an atmospheric distillation process and comes out as several products which are subsequently treated by hydro- or merox treaters, subject to secondary distillation, or gas processing, then subject to FCC feeds, cokers, hydrocracking, isomerization, reformer stages, etc). The complexity score of a refinery is the weighted average complexity of its output lines. Toa Oil is in the very high teens whereas most major refiners just get to double digits or slightly above.</p>
<p>Generically, a refinery's Nelson Complexity Index/Score is a measure of the value of the refinery - both in cost terms and in terms of value-add. </p>
<p>Toa Oil effectively sold itself to Showa Shell in 1979 then Showa Shell consolidated it in 2005 when activists were knocking on the door of cheap stocks and Toa placed shares with Showa Shell taking their ownership to 50.1%. Since then, Showa Shell (and now Idemitsu) has effectively used it as an outsourced capital asset. Huge sums were invested, and subsequently depreciated, and now the "book value" of the assets is effectively below 20% of the investment cost, and the book value of the refinery portion (not including the land or some of the financial assets related to the oil business in Japan (oil refining taxes stream through companies like this as both assets and liabilities because of the methodology applied)) is probably on the order of 10-15% of its replacement value. </p>
<p>But Showa Shell used it, and now Idemitsu uses it, as a rented asset. Toa sells 90% of its output to Idemitsu, and generates electricity with much of the rest, which it sells to TEPCO. The business with Idemitsu is just a tolling charge. Idemitsu supplies crude, uses the refinery for a fee, then takes the product. If spreads are good, Idemitsu benefits. If spreads are low, Idemitsu effectively has the low-cost producer on tap at a low price. How is that tolling charge set? It's not clear. The arithmetic doesn't add up to arms' length or market pricing. The board of Toa is a couple of inexpert independents, a former customer (who is described as independent), one or two internal people, and four people from Idemitsu and Showa Shell. It would be surprising if it were NOT Idemitsu determining for Toa how much Toa was going to charge. Toa could, of course, negotiate fiercely. The CEO (a former Idemitsu man) who gets paid by the board (full of Idemitsu people) to rent its asset to Idemitsu at a rate which is completely uneconomic long-term and ignores the value built up over the years by shareholders. </p>
<p><strong>Today, after years of speculation, Idemitsu announced that it would launch a Tender Offer for Toa Oil to take out the minorities.</strong> It comes at ¥2450/share which is a 23% premium to last, a slight premium to book, a discount to the land value under the refinery, and a tiny fraction of the replacement value of the asset, but the "fair value" assessed by the independent valuation agent based on numbers supplied by the Target Company based on its contract with the parent company shows that the price is not too far off "fair", as long as the contract with its parent is fair, and one ignores what the real world value is.</p>
<p>The Tender Offer starts today and goes for 30 days. </p>
<p>Because this was a clear situation of informational edge owned by the Acquiror, who controls the company and its board, in a highly technical industry, with highly-regulated processes and somewhat complex valuation methodologies, it would make total sense that the inexpert independent board members seek out expert help to value the complex asset in a complex business. Obviously, with the social demands of the Corporate Governance Code and last year's METI Fair M&amp;A Guidelines weighing heavily on the Toa directors, they would have ensured that they were extra careful to establish a fair process, including a market check, expert valuation, a majority of minority investor agreement, and separate advisors for the Special Committee. They would have gotten a fairness opinion.</p>
<p>Toa Oil minority shareholders, unfortunately, are left without any of that. </p>
<p>There is a large foreign shareholder who has been buying who, given their buying activity, and their long-term average purchase price, is unlikely to be ecstatic with this price. But to see this get a bump, it probably needs more people getting upset. </p>

When one looks upon the landscape of Japan's oil refineries - a delightful vista of 20th century industrialisation being left by the wayside in the move to EVs, solar power, "green" investment, etc, one small refinery stands out - the Keihin refinery of Toa Oil Co Ltd (5008 JP). 



Toa Oil's Keihin Refinery has a Nelson Complexity Index higher than any other refinery in Japan to my knowledge (the Nelson Complexity Index provides a measure of the ability of a refinery to process inputs into lighter product. The lighter the end product, the higher the complexity score on that particular line/output (crude goes into an atmospheric distillation process and comes out as several products which are subsequently treated by hydro- or merox treaters, subject to secondary distillation, or gas processing, then subject to FCC feeds, cokers, hydrocracking, isomerization, reformer stages, etc). The complexity score of a refinery is the weighted average complexity of its output lines. Toa Oil is in the very high teens whereas most major refiners just get to double digits or slightly above.
Generically, a refinery's Nelson Complexity Index/Score is a measure of the value of the refinery - both in cost terms and in terms of value-add. 
Toa Oil effectively sold itself to Showa Shell in 1979 then Showa Shell consolidated it in 2005 when activists were knocking on the door of cheap stocks and Toa placed shares with Showa Shell taking their ownership to 50.1%. Since then, Showa Shell (and now Idemitsu) has effectively used it as an outsourced capital asset. Huge sums were invested, and subsequently depreciated, and now the "book value" of the assets is effectively below 20% of the investment cost, and the book value of the refinery portion (not including the land or some of the financial assets related to the oil business in Japan (oil refining taxes stream through companies like this as both assets and liabilities because of the methodology applied)) is probably on the order of 10-15% of its replacement value. 
But Showa Shell used it, and now Idemitsu uses it, as a rented asset. Toa sells 90% of its output to Idemitsu, and generates electricity with much of the rest, which it sells to TEPCO. The business with Idemitsu is just a tolling charge. Idemitsu supplies crude, uses the refinery for a fee, then takes the product. If spreads are good, Idemitsu benefits. If spreads are low, Idemitsu effectively has the low-cost producer on tap at a low price. How is that tolling charge set? It's not clear. The arithmetic doesn't add up to arms' length or market pricing. The board of Toa is a couple of inexpert independents, a former customer (who is described as independent), one or two internal people, and four people from Idemitsu and Showa Shell. It would be surprising if it were NOT Idemitsu determining for Toa how much Toa was going to charge. Toa could, of course, negotiate fiercely. The CEO (a former Idemitsu man) who gets paid by the board (full of Idemitsu people) to rent its asset to Idemitsu at a rate which is completely uneconomic long-term and ignores the value built up over the years by shareholders. 
Today, after years of speculation, Idemitsu announced that it would launch a Tender Offer for Toa Oil to take out the minorities. It comes at ¥2450/share which is a 23% premium to last, a slight premium to book, a discount to the land value under the refinery, and a tiny fraction of the replacement value of the asset, but the "fair value" assessed by the independent valuation agent based on numbers supplied by the Target Company based on its contract with the parent company shows that the price is not too far off "fair", as long as the contract with its parent is fair, and one ignores what the real world value is.
The Tender Offer starts today and goes for 30 days. 
Because this was a clear situation of informational edge owned by the Acquiror, who controls the company and its board, in a highly technical industry, with highly-regulated processes and somewhat complex valuation methodologies, it would make total sense that the inexpert independent board members seek out expert help to value the complex asset in a complex business. Obviously, with the social demands of the Corporate Governance Code and last year's METI Fair M&amp;A Guidelines weighing heavily on the Toa directors, they would have ensured that they were extra careful to establish a fair process, including a market check, expert valuation, a majority of minority investor agreement, and separate advisors for the Special Committee. They would have gotten a fairness opinion.
Toa Oil minority shareholders, unfortunately, are left without any of that. 
There is a large foreign shareholder who has been buying who, given their buying activity, and their long-term average purchase price, is unlikely to be ecstatic with this price. But to see this get a bump, it probably needs more people getting upset. 

Idemitsu Launches Lowball Tender Offer for Subsidiary Toa Oil (5008)

'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.

Thematic (Sector/Industry)

<div><p style="text-align: center;"><strong>•BEST &amp; WORST 11th AUGUST •</strong></p></div><div>
<p>The 'best' of Tuesday's large-cap announcements came from <a href="https://www.smartkarma.com/entities/taiko-pharmaceutical-co-ltd" target="_blank" data-smartkarma-citation="entities:11127:1" rel="noopener">Taiko Pharmaceutical (4574 JP)</a><a href="https://www.smartkarma.com/entities/yaoko-co-ltd" target="_blank" data-smartkarma-citation="entities:1419:1" rel="noopener">,</a> the worst from railway group <a href="https://www.smartkarma.com/entities/hankyu-hanshin-holdings-inc" target="_blank" data-smartkarma-citation="entities:13058:1" rel="noopener">Hankyu Hanshin (9042 JP)</a>.  More extensive coverage follows in the <strong>DETAIL</strong> section below.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/152/180/original/2020-08-13_05-28-00.png?1597264094" class="editor-image img-responsive" data-smartkarma-image-id="152180"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/152/181/original/2020-08-13_05-28-38.png?1597264139" class="editor-image img-responsive" data-smartkarma-image-id="152181"></figure><div class="content-caption">Source • Japan Analytics</div>
<hr>
<div><p style="text-align: center;"><strong>DAILY STATS</strong></p></div>
<hr>
<div><p><strong>(BACK TO WEAK) PERCENTAGES</strong> -<strong> 63%</strong> of quarterly results, <strong>61%</strong> of annual forecasts/revisions and<strong> 71%</strong> of interim forecasts have negative Scores and 30% of companies reporting lost money for the quarter.</p></div>
<hr>
<div><p style="text-align: center;"><strong>218 Quarterly Results</strong></p></div>
<div><ul>
<li>
<strong>Results Score:</strong> 28% Positive / 9% Neutral / 63% Negative</li>
<li>
<strong>Average Results Score Change:</strong> -3.8 points</li>
<li>
<strong>Average % Change in Revenue:</strong> -7.2% Quarter YoY / -0.0% Rolling TTM YoY </li>
<li>
<strong>Average Operating Profit Margin Change:</strong> +2.5 ppt</li>
<li>
<strong>Percentage Making Quarterly Losses:</strong> 30%</li>
</ul></div>
<hr>
<div><p style="text-align: center;"><strong>80 Annual • 35 Interim Forecasts/Revisions</strong></p></div>
<div><ul>
<li>
<strong>Annual Forecast/Revision Score:</strong> 29% Positive / 10% Neutral / 61% Negative</li>
<li>
<strong>Interim Forecast/Revision Score Change:</strong> 23% Positive / 6% Neutral / 71% Negative</li>
<li>
<strong>Average Forecast/Revision Score Change:</strong> -7.4 points</li>
</ul></div>
</div>

•BEST &amp; WORST 11th AUGUST •
The 'best' of Tuesday's large-cap announcements came from Taiko Pharmaceutical (4574 JP), the worst from railway group Hankyu Hanshin (9042 JP).  More extensive coverage follows in the DETAIL section below.
Source • Japan Analytics

DAILY STATS

(BACK TO WEAK) PERCENTAGES - 63% of quarterly results, 61% of annual forecasts/revisions and 71% of interim forecasts have negative Scores and 30% of companies reporting lost money for the quarter.

218 Quarterly Results


Results Score: 28% Positive / 9% Neutral / 63% Negative

Average Results Score Change: -3.8 points

Average % Change in Revenue: -7.2% Quarter YoY / -0.0% Rolling TTM YoY 

Average Operating Profit Margin Change: +2.5 ppt

Percentage Making Quarterly Losses: 30%


80 Annual • 35 Interim Forecasts/Revisions


Annual Forecast/Revision Score: 29% Positive / 10% Neutral / 61% Negative

Interim Forecast/Revision Score Change: 23% Positive / 6% Neutral / 71% Negative

Average Forecast/Revision Score Change: -7.4 points



🇯🇵 JAPAN • Results & Revisions 12th August - PPI, Toshiba, McDonald's, ENEOS

<p><strong>FROM OPERATING TO FINANCING CASH FLOWS</strong> -  Having examined Operating Cash Flow in our previous <a href="https://www.smartkarma.com/insights/japan-stress-tests-part-2-operating-cash-flow-accruals" target="_blank" data-smartkarma-citation="insights:40321" rel="noopener">Insight</a>, we shall look into the 'stressors' between Operating Cash Flow and Financing Cash Flow. In our reformulated Cash Flow Statements, cash flows relating to operating activities are divided into Operating Cash Flows and Investing Cash Flows, which comprise Fixed Asset and Inventory Cash Flows.  Free Cash Flow is the sum of Operating Cash Flow, Fixed Asset Cash Flow and Inventory Cash Flow. Inventories are not included in Operating Cash Flow as they are considered discretionary, are often related to Fixed asset Cash Flows, and can be highly seasonal.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/141/225/original/2020-06-21_08-34-07.png?1592698079" class="editor-image img-responsive" data-smartkarma-image-id="141225"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>JAPAN WAS FCF POSITIVE IN Q4..</strong> - Despite the decline in Operating Cash Flow in the last quarter (the final quarter of the Fiscal Year for most Japanese companies), Investing Cash Flow was more positive than in any quarter since FY2016-Q4, which also coincided with the last business cycle low. As a result, the aggregate Free Cash Flow for the 3,639 listed non-financial companies (excluding<a href="https://www.smartkarma.com/entities/rakuten-inc" target="_blank" data-smartkarma-citation="entities:31:1" rel="noopener"> Rakuten (4755 JP)</a>, <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>, <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>, <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> and <a href="https://www.smartkarma.com/entities/sony-corp" target="_blank" data-smartkarma-citation="entities:563:1" rel="noopener">Sony (6758 JP)</a>) was an impressive ¥8.4 trillion or an annualised yield of 6.4%.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/141/223/original/2020-06-21_08-51-12.png?1592697088" class="editor-image img-responsive" data-smartkarma-image-id="141223"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>..AS CAPEX WAS PUT ON HOLD</strong> - Seasonally Japanese companies capital expenditures are higher in the second half of the fiscal year- in FY2019, ¥21trillion was added to Operating Assets. In contrast, FY2020 saw a 79% decline in capex to ¥4.4 trillion, all of which was spent in the third quarter. This decline is the most substantial second-half quarter-on-quarter contraction in fixed asset outflows since 2009.   </p><p>In the <strong>DETAIL</strong> below, we shall highlight those 'outlier' large-cap companies which are either end of the capex, inventory and Free Cash Flow tables, and focus on those with the greatest intimations of business 'stress'. We have excluded the Real Estate Sector from this analysis due to the inherent volatility of fixed assets and inventory cash flows fo these companies.</p>

FROM OPERATING TO FINANCING CASH FLOWS -  Having examined Operating Cash Flow in our previous Insight, we shall look into the 'stressors' between Operating Cash Flow and Financing Cash Flow. In our reformulated Cash Flow Statements, cash flows relating to operating activities are divided into Operating Cash Flows and Investing Cash Flows, which comprise Fixed Asset and Inventory Cash Flows.  Free Cash Flow is the sum of Operating Cash Flow, Fixed Asset Cash Flow and Inventory Cash Flow. Inventories are not included in Operating Cash Flow as they are considered discretionary, are often related to Fixed asset Cash Flows, and can be highly seasonal.Source: Japan AnalyticsJAPAN WAS FCF POSITIVE IN Q4.. - Despite the decline in Operating Cash Flow in the last quarter (the final quarter of the Fiscal Year for most Japanese companies), Investing Cash Flow was more positive than in any quarter since FY2016-Q4, which also coincided with the last business cycle low. As a result, the aggregate Free Cash Flow for the 3,639 listed non-financial companies (excluding Rakuten (4755 JP), Z Holdings (4689 JP), Japan Post (6178 JP), Softbank Group (9984 JP) and Sony (6758 JP)) was an impressive ¥8.4 trillion or an annualised yield of 6.4%.Source: Japan Analytics..AS CAPEX WAS PUT ON HOLD - Seasonally Japanese companies capital expenditures are higher in the second half of the fiscal year- in FY2019, ¥21trillion was added to Operating Assets. In contrast, FY2020 saw a 79% decline in capex to ¥4.4 trillion, all of which was spent in the third quarter. This decline is the most substantial second-half quarter-on-quarter contraction in fixed asset outflows since 2009.   In the DETAIL below, we shall highlight those 'outlier' large-cap companies which are either end of the capex, inventory and Free Cash Flow tables, and focus on those with the greatest intimations of business 'stress'. We have excluded the Real Estate Sector from this analysis due to the inherent volatility of fixed assets and inventory cash flows fo these companies.

🇯🇵 JAPAN - Stress Tests Part 3 - Inventory, Fixed Asset & Free Cash Flows

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/454/original/2020-04-18_16-16-49.png?1587194226" class="editor-image img-responsive" data-smartkarma-image-id="128454"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>MARKING TIME</strong> - Japanse equities were becalmed last week, rising by 0.84%, while the Yen traded at 107 all week. The Bank of Japan bought ETFs on Wednesday and Thursday despite the relative calm and are on a path for April to equal the total purchases made in March. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/455/original/2020-04-18_17-43-44.png?1587199447" class="editor-image img-responsive" data-smartkarma-image-id="128455"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>MARKING MULTIPLES</strong> - As we have been covering in our daily Results &amp; Revisions updates, forward earnings continue to decline gradually. As previously noted, the market multiple will rise over the next month as full-year forecasts for FY2021 are announced to at least the early 2020 peak of 17.6 times. This adjustment process will be complicated by a lack of initial forecasts from many leading companies and by a delay in the publication of annual <em>yuho</em> audited financial statements until the late summer. 'Robust' analysis will be at a premium.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/651/original/File%202020-04-20%204%2023%2024.jpeg?1587324271" class="editor-image img-responsive" data-smartkarma-image-id="128651"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/652/original/File%202020-04-20%204%2024%2019.jpeg?1587324282" class="editor-image img-responsive" data-smartkarma-image-id="128652"></figure><p></p><div class="content-caption">Source • ourworldindata.org</div><p><strong>COVID CASE COUNT</strong> - Japan's COVID-19 daily case-count has trended down this week compared to the weel before and is now on a par with Sweden and Singapore. Daily fatalities are averaging double figures as this lagging statistics reflects the higher case count of two weeks ago and are still within the East Asian 'range' of 0-10 a day. New case counts of below 100 and a declining trend, as is the case in South Korea, Denmark and Austria will be required by the end of Golden Week on May 6th for Japan to consider any relaxation of its now nationwide 'state of emergency'. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/558/original/File%202020-04-19%2016%2028%2027.jpeg?1587281926" class="editor-image img-responsive" data-smartkarma-image-id="128558"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/559/original/File%202020-04-19%2016%2023%2014.jpeg?1587281952" class="editor-image img-responsive" data-smartkarma-image-id="128559"></figure><div class="content-caption">Source • ourworldindata.org</div><p><strong>JAPAN'S TESTING VACUUM</strong> - We have noted the lack of testing in Japan in an earlier <a href="https://www.smartkarma.com/insights/japan-market-update-hit-the-boj-bid-and-wait-for-the-absolute-value-opportunity" target="_blank" data-smartkarma-citation="insights:37670" rel="noopener">Insight</a> and the two charts above from Oxford's Global Change Data Lab highlights Japan's outlier status in this regard and the implications for confirmed case counts and confirmed deaths. This deficiency has led many data scientists to study excess mortality rates. At present, there is insufficient data from the Health Ministry in Japan to make any valid comparisons. Based on other countries, Japan's excess mortality will likely price to be slightly higher for the over 65s and lower for everyone else. In any case, a massive testing capability will form a key component of any viable exit strategy.     </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/479/original/File%202020-04-19%206%2024%2053.jpeg?1587245112" class="editor-image img-responsive" data-smartkarma-image-id="128479"></figure><div class="content-caption">Source • stopcovid19.jp</div><p><strong>OVERSHOOT</strong> - Unfortunately for patients and the government, hospitals are now full in many prefectures. Central Tokyo hospitals are turning away patients requiring ambulances to take patients to outlying parts of the prefecture - although this situation is not unusual in normal times. Despite ample time to prepare, the government has failed to provide for the 'overshoot' that they had been warning the public it was necessary to avoid. Japan also has a lower ratio of intensive care beds, (5) per 100,000 people, than many other developed countries. The previous policy of hospitalising every case, however mild, has been reversed and local governments have now requisitioned 210,000 hotel rooms to house those not in need of urgent medical intervention. While Japan's COVID-19 strategy has, so far, followed the less economically-damaging Swedish model (see below), a failure to address the hospital overshoot risks the country being forced to follow the UK's 'u-turn' into total lockdown from which exit strategies are much harder. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/650/original/2020-04-20_04-02-00.png?1587322973" class="editor-image img-responsive" data-smartkarma-image-id="128650"></figure><div class="content-caption">Source • Tokyo Metropolitan Government</div><p><strong>PEAKING OUT?</strong> On Sunday, Tokyo only 107 new cases, the lowest Sunday total for three weeks and the first decline. Tokyo now has over 3,000 cases out of a population of almost 14 million. The rate of doubling is now decelerating from one week to two weeks. Meanwhile, transit through major railway stations has declined by 70-80% across Japan. A lowering of new cases next week will be crucial to keep the hospitals from overflowing and the Prime Minister's reputation from falling further.</p><p><strong>FALLOUT</strong> - PM Abe's political capital is another casualty of this disease. It has emerged that his coalition partner the lay-Buddhist Komeito party threatened to walk out if the cash-for-all policy was not implemented requiring Abe to amend a previously-agreed budget bill much to the fury of the Ministry of Finance. The latter was able to require an application process as a means of limiting the amounts dispersed. However, in a bow to the changing circumstance, this process can be conducted online without, it seems, the need for in-person <em>hanko</em> certification. An additional complication is that Abe has 'fallen out' with his main bureaucratic 'fixer' and the main conduit with Komeito, Chief Cabinet Secretary Suga. Abe's poll ratings will probably never recover, and only his long-cherished desire to open the Tokyo Olympics in July 20121 will keep him in office. As will be true in many countries, the COVID-19 policy post mortems will be brutal and fatal for many previously Teflon-like political careers.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/486/original/File%202020-04-18%2013%2054%2022.jpeg?1587246944" class="editor-image img-responsive" data-smartkarma-image-id="128486"></figure><div class="content-caption">Source • Agoop</div><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/488/original/File%202020-04-18%2013%2053%2001.jpeg?1587247186" class="editor-image img-responsive" data-smartkarma-image-id="128488"></figure><div class="content-caption">Source • @shinagawajp &gt; Blue bars = COVID-19 cases by Tokyo Ward   Orange Line = Concentration of people at 11 pm</div><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/490/original/File%202020-04-18%2014%2000%2004.jpeg?1587247628" class="editor-image img-responsive" data-smartkarma-image-id="128490"></figure><div class="content-caption">Source • @shinagawajp &gt; Blue bars = COVID-19 cases by Tokyo Ward  Red Line = Population earning more than ¥15m a year</div><p><strong>HOTSPOTS &amp; FAT CATS</strong> - Some support for the government's policy of shutting down Tokyo's nightlife comes from data which correlates case count per Tokyo ward and population clusters in each area at 11 pm.  The correlation is much higher than both population levels and public transport transit through each ward. The second highest correlation was with income levels, suggesting that Tokyo' rich have a greater tendency to frequent bars, restaurants and other forms of evening entertainment, while no doubt considering themselves immune. This correlation has been anecdotally confirmed by the growing number of figures from the media and entertainment world who have contracted the disease and bears out the Tokyo Metropolitan Government's focus on avoiding the 3 'C's - <strong>C</strong>ongregations <strong>C</strong>onversing in <strong>C</strong>onfined spaces. The plug has been pulled on Tokyo's '<em>mizushobai'</em> or 'water trade'.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/663/original/File%202020-04-20%205%2020%2010.jpeg?1587327650" class="editor-image img-responsive" data-smartkarma-image-id="128663"></figure><div class="content-caption">Source • Johns Hopkins CSSE</div><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/478/original/2020-04-19_06-16-22.png?1587244624" class="editor-image img-responsive" data-smartkarma-image-id="128478"></figure><div class="content-caption">Source • LockdownTV</div><p><strong>PROF GIESECKE &amp; THE SWEDISH MODEL</strong> - Lastly, this <a href="https://youtu.be/bfN2JWifLCY" target="_blank" rel="noopener">video</a> of an interview with retired Swedish epidemiologist, Professor Johan Giesecke, provides an update on the policy options that governments have faced in their responses to COVID-19, the background to Sweden's policy and the difficulties of exiting from lockdown strategies. A summary of his talk is as follows:-</p><blockquote>
<p>Lockdown policies are not evidence-based</p>
<p>The correct policy is to protect the old and the frail only - this will eventually lead to herd immunity as a by-product - the initial UK response, which was similar to Sweden's was better  - before they made a 180 degree U-turn</p>
<p>The UK's Imperial College paper was not very good and he has never seen an unpublished paper have so much policy impact - the paper was  too pessimistic and any such models are a dubious basis for public policy</p>
<p>The flattening of the curve is due to the most vulnerable dying first as much as the lockdown policy</p>
<p>The outcomes will eventually be similar for all countries regardless of policy pursued</p>
<p>Covid-19 is a mild disease similar to the flu, and it was the novelty of the disease that scared people - the fatality rate of Covid-19 is the region of 0.1%</p>
<p>At least 50% of the population will be shown to have already had the disease when mass antibody testing becomes available - achieving 'herd immunity'</p>
</blockquote><p>In the <strong>DETAIL </strong>below, we shall explore some of the emerging themes for the post-COVID-19 world, review the results, revisions and initial forecast announcements made on Friday and, finally, look at our lists the Moving Average 'Outliers'.  The positive/neutral/negative balance for Friday's three results announcements was 1:0:2. For the 20 revisions/forecasts, the split was 7:1:12 - although two of the positive outcomes were securities brokers making initial 'forecasts' of a year-on-year return to profitability after the full-year results have been finalised. Peer Groups revising down included <strong>Advertising Services</strong>, <strong>Apparel &amp; Footwear</strong>, <strong>Retail-Apparel &amp; Footwear</strong>, <strong>Hotels &amp; Resorts</strong>, <strong>Employment &amp; Staffing</strong>, and<strong> Restaurants</strong>. Upward revisions were seen in<strong> Retail-Food &amp; Drink</strong>, <strong>Personal Products</strong>, and<strong> Public Relations</strong>.</p>

Source • Japan AnalyticsMARKING TIME - Japanse equities were becalmed last week, rising by 0.84%, while the Yen traded at 107 all week. The Bank of Japan bought ETFs on Wednesday and Thursday despite the relative calm and are on a path for April to equal the total purchases made in March. Source • Japan AnalyticsMARKING MULTIPLES - As we have been covering in our daily Results &amp; Revisions updates, forward earnings continue to decline gradually. As previously noted, the market multiple will rise over the next month as full-year forecasts for FY2021 are announced to at least the early 2020 peak of 17.6 times. This adjustment process will be complicated by a lack of initial forecasts from many leading companies and by a delay in the publication of annual yuho audited financial statements until the late summer. 'Robust' analysis will be at a premium.Source • ourworldindata.orgCOVID CASE COUNT - Japan's COVID-19 daily case-count has trended down this week compared to the weel before and is now on a par with Sweden and Singapore. Daily fatalities are averaging double figures as this lagging statistics reflects the higher case count of two weeks ago and are still within the East Asian 'range' of 0-10 a day. New case counts of below 100 and a declining trend, as is the case in South Korea, Denmark and Austria will be required by the end of Golden Week on May 6th for Japan to consider any relaxation of its now nationwide 'state of emergency'. Source • ourworldindata.orgJAPAN'S TESTING VACUUM - We have noted the lack of testing in Japan in an earlier Insight and the two charts above from Oxford's Global Change Data Lab highlights Japan's outlier status in this regard and the implications for confirmed case counts and confirmed deaths. This deficiency has led many data scientists to study excess mortality rates. At present, there is insufficient data from the Health Ministry in Japan to make any valid comparisons. Based on other countries, Japan's excess mortality will likely price to be slightly higher for the over 65s and lower for everyone else. In any case, a massive testing capability will form a key component of any viable exit strategy.     Source • stopcovid19.jpOVERSHOOT - Unfortunately for patients and the government, hospitals are now full in many prefectures. Central Tokyo hospitals are turning away patients requiring ambulances to take patients to outlying parts of the prefecture - although this situation is not unusual in normal times. Despite ample time to prepare, the government has failed to provide for the 'overshoot' that they had been warning the public it was necessary to avoid. Japan also has a lower ratio of intensive care beds, (5) per 100,000 people, than many other developed countries. The previous policy of hospitalising every case, however mild, has been reversed and local governments have now requisitioned 210,000 hotel rooms to house those not in need of urgent medical intervention. While Japan's COVID-19 strategy has, so far, followed the less economically-damaging Swedish model (see below), a failure to address the hospital overshoot risks the country being forced to follow the UK's 'u-turn' into total lockdown from which exit strategies are much harder. Source • Tokyo Metropolitan GovernmentPEAKING OUT? On Sunday, Tokyo only 107 new cases, the lowest Sunday total for three weeks and the first decline. Tokyo now has over 3,000 cases out of a population of almost 14 million. The rate of doubling is now decelerating from one week to two weeks. Meanwhile, transit through major railway stations has declined by 70-80% across Japan. A lowering of new cases next week will be crucial to keep the hospitals from overflowing and the Prime Minister's reputation from falling further.FALLOUT - PM Abe's political capital is another casualty of this disease. It has emerged that his coalition partner the lay-Buddhist Komeito party threatened to walk out if the cash-for-all policy was not implemented requiring Abe to amend a previously-agreed budget bill much to the fury of the Ministry of Finance. The latter was able to require an application process as a means of limiting the amounts dispersed. However, in a bow to the changing circumstance, this process can be conducted online without, it seems, the need for in-person hanko certification. An additional complication is that Abe has 'fallen out' with his main bureaucratic 'fixer' and the main conduit with Komeito, Chief Cabinet Secretary Suga. Abe's poll ratings will probably never recover, and only his long-cherished desire to open the Tokyo Olympics in July 20121 will keep him in office. As will be true in many countries, the COVID-19 policy post mortems will be brutal and fatal for many previously Teflon-like political careers.Source • AgoopSource • @shinagawajp &gt; Blue bars = COVID-19 cases by Tokyo Ward   Orange Line = Concentration of people at 11 pmSource • @shinagawajp &gt; Blue bars = COVID-19 cases by Tokyo Ward  Red Line = Population earning more than ¥15m a yearHOTSPOTS &amp; FAT CATS - Some support for the government's policy of shutting down Tokyo's nightlife comes from data which correlates case count per Tokyo ward and population clusters in each area at 11 pm.  The correlation is much higher than both population levels and public transport transit through each ward. The second highest correlation was with income levels, suggesting that Tokyo' rich have a greater tendency to frequent bars, restaurants and other forms of evening entertainment, while no doubt considering themselves immune. This correlation has been anecdotally confirmed by the growing number of figures from the media and entertainment world who have contracted the disease and bears out the Tokyo Metropolitan Government's focus on avoiding the 3 'C's - Congregations Conversing in Confined spaces. The plug has been pulled on Tokyo's 'mizushobai' or 'water trade'.Source • Johns Hopkins CSSESource • LockdownTVPROF GIESECKE &amp; THE SWEDISH MODEL - Lastly, this video of an interview with retired Swedish epidemiologist, Professor Johan Giesecke, provides an update on the policy options that governments have faced in their responses to COVID-19, the background to Sweden's policy and the difficulties of exiting from lockdown strategies. A summary of his talk is as follows:-
Lockdown policies are not evidence-based
The correct policy is to protect the old and the frail only - this will eventually lead to herd immunity as a by-product - the initial UK response, which was similar to Sweden's was better  - before they made a 180 degree U-turn
The UK's Imperial College paper was not very good and he has never seen an unpublished paper have so much policy impact - the paper was  too pessimistic and any such models are a dubious basis for public policy
The flattening of the curve is due to the most vulnerable dying first as much as the lockdown policy
The outcomes will eventually be similar for all countries regardless of policy pursued
Covid-19 is a mild disease similar to the flu, and it was the novelty of the disease that scared people - the fatality rate of Covid-19 is the region of 0.1%
At least 50% of the population will be shown to have already had the disease when mass antibody testing becomes available - achieving 'herd immunity'
In the DETAIL below, we shall explore some of the emerging themes for the post-COVID-19 world, review the results, revisions and initial forecast announcements made on Friday and, finally, look at our lists the Moving Average 'Outliers'.  The positive/neutral/negative balance for Friday's three results announcements was 1:0:2. For the 20 revisions/forecasts, the split was 7:1:12 - although two of the positive outcomes were securities brokers making initial 'forecasts' of a year-on-year return to profitability after the full-year results have been finalised. Peer Groups revising down included Advertising Services, Apparel &amp; Footwear, Retail-Apparel &amp; Footwear, Hotels &amp; Resorts, Employment &amp; Staffing, and Restaurants. Upward revisions were seen in Retail-Food &amp; Drink, Personal Products, and Public Relations.

🇯🇵 JAPAN MARKET (& COVID-19) UPDATE 19th April - Overshoot

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ENEOS Holdings, Inc. operates refining and marketing businesses. The Company refines and distributes petroleum and petroleum chemical products. ENEOS Holdings also provides non ferrous metals, electronic materials, and other products.

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