Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

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.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 <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>. There have been a few developments since the announcement.<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 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, <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>, and some speculation about what might be behind the Idemitsu deal for Toa. The conclusions of the article in that regard are striking. 
</li>
</ul><div class="content-highlight">
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. 
</div>Discussion continues below.

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.

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>. 
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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.

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)

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Quantitative Analysis

The Japan Exchange Group (JPX) publishes a daily report that details the short sell activity by market participants. JPX aggregates broker short sell reports and discloses information such as the short sale positions and the names of the investors whose short sale positions reach 0.5% of the outstanding shares. Here is some information on short positions for the week ended 16 August.The short notional in the market for the week ended 16 August is US$24.65bn with the largest short positions in <a href="https://www.smartkarma.com/entities/itochu-corp" target="_blank" rel="noopener" data-smartkarma-citation="entities:18448:1">Itochu Corp (8001 JP)</a>, <a href="https://www.smartkarma.com/entities/toyota-motor-corp" target="_blank" rel="noopener" data-smartkarma-citation="entities:73:1">Toyota Motor (7203 JP)</a>, <a href="https://www.smartkarma.com/entities/taiyo-yuden-co-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:9924:1">Taiyo Yuden (6976 JP)</a>, <a href="https://www.smartkarma.com/entities/canon-inc" target="_blank" rel="noopener" data-smartkarma-citation="entities:1:1">Canon Inc (7751 JP)</a>  and <a href="https://www.smartkarma.com/entities/sumitomo-mitsui-financial-gr" target="_blank" rel="noopener" data-smartkarma-citation="entities:217:1">Sumitomo Mitsui Financial (8316 JP)</a> <a href="https://www.smartkarma.com/entities/fast-retailing-co-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:751:1"></a>. Most shorted stocks as a percentage of free float are Amazia, <a href="https://www.smartkarma.com/entities/taiyo-yuden-co-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:9924:1">Taiyo Yuden (6976 JP)</a>, <a href="https://www.smartkarma.com/entities/tokai-carbon-co-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:9145:1">Tokai Carbon (5301 JP)</a> and <a href="https://www.smartkarma.com/entities/leopalace21-corp" target="_blank" rel="noopener" data-smartkarma-citation="entities:8244:1">Leopalace21 Corp (8848 JP)</a>  while the stocks with the highest days to cover are <a href="https://www.smartkarma.com/entities/katakura-industries-co-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:2007:1">Katakura Industries (3001 JP)</a>, <a href="https://www.smartkarma.com/entities/vital-ksk-holdings-inc" target="_blank" rel="noopener" data-smartkarma-citation="entities:7398:1">Vital Ksk Holdings (3151 JP)</a>, <a href="https://www.smartkarma.com/entities/mirait-holdings-corp" target="_blank" rel="noopener" data-smartkarma-citation="entities:7034:1">Mirait Holdings (1417 JP)</a> and <a href="https://www.smartkarma.com/entities/aruhi-corp" target="_blank" rel="noopener" data-smartkarma-citation="entities:26072:1">Aruhi Corp (7198 JP)</a>.The largest increases in short notional over the week were <a href="https://www.smartkarma.com/entities/advantest-corp" target="_blank" rel="noopener" data-smartkarma-citation="entities:18107:1">Advantest Corp (6857 JP)</a>, <a href="https://www.smartkarma.com/entities/rakuten-inc" target="_blank" rel="noopener" data-smartkarma-citation="entities:31:1">Rakuten Inc (4755 JP)</a>, <a href="https://www.smartkarma.com/entities/jxtg-holdings-inc" target="_blank" rel="noopener" data-smartkarma-citation="entities:638:1">JXTG Holdings (5020 JP)</a> and <a href="https://www.smartkarma.com/entities/nomura-real-estate-master-fu" target="_blank" rel="noopener" data-smartkarma-citation="entities:22930:1">Nomura Real Estate Master Fund, (3462 JP)</a> while shorts were covered in <a href="https://www.smartkarma.com/entities/fast-retailing-co-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:751:1">Fast Retailing (9983 JP)</a>, <a href="https://www.smartkarma.com/entities/square-enix-holdings-co-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:15003:1">Square Enix Holdings (9684 JP)</a>, <a href="https://www.smartkarma.com/entities/chugoku-electric-power-co" target="_blank" rel="noopener" data-smartkarma-citation="entities:16243:1">Chugoku Electric Power Co (9504 JP)</a> and <a href="https://www.smartkarma.com/entities/alps-alpine-co-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:12001:1">Alps Alpine (6770 JP)</a>.   <a href="https://www.smartkarma.com/entities/zozo-inc" target="_blank" rel="noopener" data-smartkarma-citation="entities:18379:1"></a>Sectorally, new short positions were built in Information Technology, Industrials and Real Estate, while shorts were covered in Consumer Discretionary and Utilities.

The Japan Exchange Group (JPX) publishes a daily report that details the short sell activity by market participants. JPX aggregates broker short sell reports and discloses information such as the short sale positions and the names of the investors whose short sale positions reach 0.5% of the outstanding shares. Here is some information on short positions for the week ended 16 August.The short notional in the market for the week ended 16 August is US$24.65bn with the largest short positions in Itochu Corp (8001 JP), Toyota Motor (7203 JP), Taiyo Yuden (6976 JP), Canon Inc (7751 JP)  and Sumitomo Mitsui Financial (8316 JP) . Most shorted stocks as a percentage of free float are Amazia, Taiyo Yuden (6976 JP), Tokai Carbon (5301 JP) and Leopalace21 Corp (8848 JP)  while the stocks with the highest days to cover are Katakura Industries (3001 JP), Vital Ksk Holdings (3151 JP), Mirait Holdings (1417 JP) and Aruhi Corp (7198 JP).The largest increases in short notional over the week were Advantest Corp (6857 JP), Rakuten Inc (4755 JP), JXTG Holdings (5020 JP) and Nomura Real Estate Master Fund, (3462 JP) while shorts were covered in Fast Retailing (9983 JP), Square Enix Holdings (9684 JP), Chugoku Electric Power Co (9504 JP) and Alps Alpine (6770 JP).   Sectorally, new short positions were built in Information Technology, Industrials and Real Estate, while shorts were covered in Consumer Discretionary and Utilities.

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

ja research

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

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/091/044/original/2019-06-23_11-15-52.png?1561256166" class="editor-image img-responsive" data-smartkarma-image-id="91044"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/091/045/original/2019-06-23_11-21-43.png?1561256515" class="editor-image img-responsive" data-smartkarma-image-id="91045"></figure>
Source: Japan Analytics
</div>RESILIENCE - Japanese equities have risen by 2.9% since the low of 4th June. In US dollar terms, the gain is 3.7%. Over the last two weeks, the gains are 0.7% and 1.6%, respectively. For the previous twelve months, the equity market has moved in almost perfect 'sync' with the US dollar/Japanese Yen exchange rate. This month's divergence is unusual, and it remains to be seen when, how, and if the gap will be closed. The cross rate is within ¥2.6 of the high points of the last two years. Barring any military sparring in the Middle East, any weakness in the Yen from current levels will be supportive of the equity market.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/091/046/original/2019-06-23_11-51-30.png?1561258305" class="editor-image img-responsive" data-smartkarma-image-id="91046"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/091/047/original/2019-06-23_11-51-58.png?1561258329" class="editor-image img-responsive" data-smartkarma-image-id="91047"></figure><div class="content-caption">Source: Japan Analytics</div>RSI &amp; TORAKU - Both the 5-day Relative Strength Index and the 25-Day Toraku Index have recovered to the middle of their normal range and suggest quieter days ahead, currency moves permitting.<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/091/065/original/2019-06-23_12-26-08.png?1561260389" class="editor-image img-responsive" data-smartkarma-image-id="91065"></figure> Source: Japan Analytics</div>ABSOLUTE BREADTH - Our Absolute Breadth Index reached a new low for the year on Friday, but is well above the 0.5 level that would indicate a buying opportunity.<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/091/069/original/2019-06-23_12-30-22.png?1561260645" class="editor-image img-responsive" data-smartkarma-image-id="91069"></figure> Source: Japan Analytics</div>VOLUME SCORE TIMELINE - Volumes remains concentrated in the Internet, Information Technology, REITs, Restaurants, and Energy Sectors, the Materials, Transportation, Utilities, and Multi-Industry Sectors are the volume laggards.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/091/100/original/2019-06-23_13-32-38.png?1561264370" class="editor-image img-responsive" data-smartkarma-image-id="91100"></figure><div class="content-caption">Source: Japan Analytics</div>VALUATION - The quarterly results for companies with January, April, July and October year-ends are now in, but have had little impact on the 'aggregates'. The trailing-twelve-month (TTM) PER is 14.4, and the Forecast PER is 13.9 - attractive relative to recent history but not at bargain-basement levels. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/091/102/original/2019-06-23_13-44-36.png?1561265086" class="editor-image img-responsive" data-smartkarma-image-id="91102"></figure><div class="content-caption">Source: Japan Analytics</div>RESULTS &amp; REVISION SCORES - Our scoring of aggregate Results and Revisions has also not seen any significant changes, although the trends are still downwards, especially for Interim Revisions.<div class="content-highlight">In the DETAIL section below, we will review Sector performance, scores and valuation, Company Results &amp; Revisions and stock performance over the previous two weeks, as well as adding some brief comments on <a href="https://www.smartkarma.com/entities/kobe-bussan-co-ltd" target="_blank" data-smartkarma-citation="entities:4701:1" rel="noopener">Kobe Bussan (3038 JP)</a>, <a href="https://www.smartkarma.com/entities/tsuruha-holdings-inc" target="_blank" data-smartkarma-citation="entities:9536:1" rel="noopener">Tsuruha (3391 JP)</a>, <a href="https://www.smartkarma.com/entities/pigeon-corp" target="_blank" data-smartkarma-citation="entities:3294:1" rel="noopener">Pigeon (7956 JP), </a><a href="https://www.smartkarma.com/entities/sanbio-co-ltd" target="_blank" data-smartkarma-citation="entities:24540:1" rel="noopener">SanBio (4592 JP)</a>, <a href="https://www.smartkarma.com/entities/ain-pharmaciez-inc" target="_blank" data-smartkarma-citation="entities:9313:1" rel="noopener">Ain (9627 JP)</a>, <a href="https://www.smartkarma.com/entities/fuji-seal-international-inc" target="_blank" data-smartkarma-citation="entities:8723:1" rel="noopener">Fuji Seal (7864 JP)</a>, <a href="https://www.smartkarma.com/entities/fanuc-corp" target="_blank" data-smartkarma-citation="entities:752:1" rel="noopener">Fanuc (6954 JP)</a>, <a href="https://www.smartkarma.com/entities/leopalace21-corp" target="_blank" data-smartkarma-citation="entities:8244:1" rel="noopener">Leopalace21 (8848 JP)</a>, and <a href="https://www.smartkarma.com/entities/obic-co-ltd" target="_blank" data-smartkarma-citation="entities:1273:1" rel="noopener">Obic (4684 JP)</a>.​ ​ ​ ​​ ​ ​ ​</div>




Source: Japan Analytics
RESILIENCE - Japanese equities have risen by 2.9% since the low of 4th June. In US dollar terms, the gain is 3.7%. Over the last two weeks, the gains are 0.7% and 1.6%, respectively. For the previous twelve months, the equity market has moved in almost perfect 'sync' with the US dollar/Japanese Yen exchange rate. This month's divergence is unusual, and it remains to be seen when, how, and if the gap will be closed. The cross rate is within ¥2.6 of the high points of the last two years. Barring any military sparring in the Middle East, any weakness in the Yen from current levels will be supportive of the equity market.Source: Japan AnalyticsRSI &amp; TORAKU - Both the 5-day Relative Strength Index and the 25-Day Toraku Index have recovered to the middle of their normal range and suggest quieter days ahead, currency moves permitting.
 Source: Japan AnalyticsABSOLUTE BREADTH - Our Absolute Breadth Index reached a new low for the year on Friday, but is well above the 0.5 level that would indicate a buying opportunity.
 Source: Japan AnalyticsVOLUME SCORE TIMELINE - Volumes remains concentrated in the Internet, Information Technology, REITs, Restaurants, and Energy Sectors, the Materials, Transportation, Utilities, and Multi-Industry Sectors are the volume laggards.Source: Japan AnalyticsVALUATION - The quarterly results for companies with January, April, July and October year-ends are now in, but have had little impact on the 'aggregates'. The trailing-twelve-month (TTM) PER is 14.4, and the Forecast PER is 13.9 - attractive relative to recent history but not at bargain-basement levels. Source: Japan AnalyticsRESULTS &amp; REVISION SCORES - Our scoring of aggregate Results and Revisions has also not seen any significant changes, although the trends are still downwards, especially for Interim Revisions.In the DETAIL section below, we will review Sector performance, scores and valuation, Company Results &amp; Revisions and stock performance over the previous two weeks, as well as adding some brief comments on Kobe Bussan (3038 JP), Tsuruha (3391 JP), Pigeon (7956 JP), SanBio (4592 JP), Ain (9627 JP), Fuji Seal (7864 JP), Fanuc (6954 JP), Leopalace21 (8848 JP), and Obic (4684 JP).​ ​ ​ ​​ ​ ​ ​

🇯🇵 JAPAN • Market Update - Resilience

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/078/341/original/2019-02-10_05-07-57.png?1549742898" class="editor-image img-responsive" data-smartkarma-image-id="78341"></figure><div class="content-caption">Source: Japan Analytics</div>BOTTOM LINE BREAKDOWN - 1,277 earnings results and/or revisions announcements were released last week in Japan covering 36% of listed market capitalisation. The good news is that aggregate trailing-twelve-month (TTM) Operating Income only declined by ¥300b. Less welcome is the ¥1.7t decline in TTM Net Income to which <a href="https://www.smartkarma.com/entities/73" target="_blank" data-smartkarma-citation="entities:73:1">Toyota Motor (7203 JP)</a>, <a href="https://www.smartkarma.com/entities/154" target="_blank" data-smartkarma-citation="entities:154:1">Honda Motor (7267 JP)</a>, <a href="https://www.smartkarma.com/entities/315" target="_blank" data-smartkarma-citation="entities:315:1">Softbank Group (9984 JP)</a>, <a href="https://www.smartkarma.com/entities/7797" target="_blank" data-smartkarma-citation="entities:7797:1">Hitachi (6501 JP)</a> were the most significant contributors, each declining by more than ¥200b. Three 'financials', <a href="https://www.smartkarma.com/entities/742" target="_blank" data-smartkarma-citation="entities:742:1">Nomura Holdings (8604 JP)</a>, <a href="https://www.smartkarma.com/entities/219" target="_blank" data-smartkarma-citation="entities:219:1">Mizuho Financial Group (8411 JP)</a>, and <a href="https://www.smartkarma.com/entities/6267" target="_blank" data-smartkarma-citation="entities:6267:1">Suruga Bank (8358 JP)</a> subtracted ¥400b between them. Only <a href="https://www.smartkarma.com/entities/563" target="_blank" data-smartkarma-citation="entities:563:1">Sony (6758 JP)</a> and <a href="https://www.smartkarma.com/entities/637" target="_blank" data-smartkarma-citation="entities:637:1">Toshiba (6502 JP)</a> added more than ¥100b for the quarter. The substantial 'gap' between forecast and TTM Net Income has been reduced to just ¥600b, again confirming the reliability of corporate forecasting in Japan. The All-Market PER is now 13.5 times but will likely rise as aggregate Net Income falls further in the next two weeks.<div class="content-highlight">In the DETAIL section below, we review this year's results of all listed companies in aggregate, update our All-Market and Sector Results &amp; Revision Scores and look at the twenty-five best and worst large-cap company results over the last week, with short comments on <a href="https://www.smartkarma.com/entities/13176" target="_blank" data-smartkarma-citation="entities:13176:1">Nabtesco Corp (6268 JP)</a>, <a href="https://www.smartkarma.com/entities/8467" target="_blank" data-smartkarma-citation="entities:8467:1">Workman (7564 JP)</a>, <a href="https://www.smartkarma.com/entities/20823" target="_blank" data-smartkarma-citation="entities:20823:1">Nakanishi (7716 JP)</a>, and <a href="https://www.smartkarma.com/entities/747" target="_blank" data-smartkarma-citation="entities:747:1">DeNA (2432 JP)</a></div>

Source: Japan AnalyticsBOTTOM LINE BREAKDOWN - 1,277 earnings results and/or revisions announcements were released last week in Japan covering 36% of listed market capitalisation. The good news is that aggregate trailing-twelve-month (TTM) Operating Income only declined by ¥300b. Less welcome is the ¥1.7t decline in TTM Net Income to which Toyota Motor (7203 JP), Honda Motor (7267 JP), Softbank Group (9984 JP), Hitachi (6501 JP) were the most significant contributors, each declining by more than ¥200b. Three 'financials', Nomura Holdings (8604 JP), Mizuho Financial Group (8411 JP), and Suruga Bank (8358 JP) subtracted ¥400b between them. Only Sony (6758 JP) and Toshiba (6502 JP) added more than ¥100b for the quarter. The substantial 'gap' between forecast and TTM Net Income has been reduced to just ¥600b, again confirming the reliability of corporate forecasting in Japan. The All-Market PER is now 13.5 times but will likely rise as aggregate Net Income falls further in the next two weeks.In the DETAIL section below, we review this year's results of all listed companies in aggregate, update our All-Market and Sector Results &amp; Revision Scores and look at the twenty-five best and worst large-cap company results over the last week, with short comments on Nabtesco Corp (6268 JP), Workman (7564 JP), Nakanishi (7716 JP), and DeNA (2432 JP)

Japan: Results & Revisions Second Cut - Bottom Line Breakdown

Japan

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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ENEOS Holdings (5020 JP)

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Japan: Results & Revisions Second Cut - Bottom Line Breakdown

BOTTOM LINE BREAKDOWN - 1,277 earnings results and/or revisions announcements were released last week in Japan covering 36% of listed market...

Campbell Gunn

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