Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Index Rebalance

NTT (Nippon Telegraph & Telephone) / Index Rebalance

NTT (Nippon Telegraph & Telephone) (9432 JP)

<ul>
<li>The TSE launched its new cash equity market structure earlier this week. The TOPIX Index changes include a one-off FFW Methodology Review, where results were announced today. </li>
<li>The changes announced today go part-way to fixing float issues, but there will be follow-on changes in October, and one should expect companies to react with share cancellations.</li>
<li>The big gainer in this TOPIX rebal is <a href="https://www.smartkarma.com/entities/nippon-telegraph-telephone-corporation" target="_blank" data-smartkarma-citation="entities:623:1" rel="noopener">NTT (Nippon Telegraph &amp; Telephone) (9432 JP)</a>. There are a fair number of "losers." The 3-month total trade is about ¥2.3trln one-way.</li>
</ul>


The TSE launched its new cash equity market structure earlier this week. The TOPIX Index changes include a one-off FFW Methodology Review, where results were announced today. 
The changes announced today go part-way to fixing float issues, but there will be follow-on changes in October, and one should expect companies to react with share cancellations.
The big gainer in this TOPIX rebal is NTT (Nippon Telegraph &amp; Telephone) (9432 JP). There are a fair number of "losers." The 3-month total trade is about ¥2.3trln one-way.


The BIGLY TOPIX April 2022 Rebalance - $20bn One-Way Split Over 3 Months

Telco/Internet specialist

Kirk Boodry

Redex Research

Equity Bottom-Up

NTT (Nippon Telegraph & Telephone) / Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/jtower-inc" target="_blank" data-smartkarma-citation="entities:31042:1" rel="noopener">JTower (4485 JP)</a> has signed a deal to buy 6,002 DoCoMo towers for ¥106bn validating its long term growth potential and its central position as Japan's infrastructure-sharing company</li>
<li>The headline numbers are maximums and could take years to realize as JTower grows to the scale required</li>
<li>Conversely it is not a large deal for DoCoMo but the first mobile tower sale/leaseback transaction in Japan highlights an industry shift towards more efficient capital deployment</li>
</ul>



JTower (4485 JP) has signed a deal to buy 6,002 DoCoMo towers for ¥106bn validating its long term growth potential and its central position as Japan's infrastructure-sharing company
The headline numbers are maximums and could take years to realize as JTower grows to the scale required
Conversely it is not a large deal for DoCoMo but the first mobile tower sale/leaseback transaction in Japan highlights an industry shift towards more efficient capital deployment


JTower Inc - DoCoMo Tower Agreement Is a Milestone

JTower will expand its infrastructure footprint with the acquisition of 71 telecom towers from NTT West. With a tenancy ratio of 2.8, it should be able to extract more value from these assets than NTT and this deal (and possibly others to follow) could provide potential revenue capacity equal to 50% of JTower’s FY20 sales. That is important because JTower trades at elevated levels (30x and 85x our FY21 forecasts for revenue and EBITDA respectively) on expectations of a larger addressable market and this deal is a step in that direction. We do not cover JTower but we track the company as part of our Japanese telecom coverage.

JTower will expand its infrastructure footprint with the acquisition of 71 telecom towers from NTT West. With a tenancy ratio of 2.8, it should be able to extract more value from these assets than NTT and this deal (and possibly others to follow) could provide potential revenue capacity equal to 50% of JTower’s FY20 sales. That is important because JTower trades at elevated levels (30x and 85x our FY21 forecasts for revenue and EBITDA respectively) on expectations of a larger addressable market and this deal is a step in that direction. We do not cover JTower but we track the company as part of our Japanese telecom coverage.

JTower Inc - NTT Tower Deal a Key Step in Expanding Its Addressable Market

Index Rebal/Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Index Rebal/Special Situations

Quantitative Analysis

There are currently ~1,500 stocks listed in the Mothers, JASDAQ, and Second Sections of the Tokyo Stock Exchange. As time passes, some of these stocks will "graduate" to the First Section of the Tokyo Stock Exchange (TSE1), triggering inclusion into the TOPIX Index causing passive funds tracking TOPIX to buy them on an inclusion event. This presents various trading opportunities in several phases of this event timeline.  Being able to identify such candidates at a "Pre-event" phase (before the TSE reassignment is confirmed) can unlock great value for speculative bets as we recently witnessed in the case of <a href="https://www.smartkarma.com/insights/topix-inclusion-4931-jp-shinnihonseiyaku" target="_blank" data-smartkarma-citation="insights:45660" rel="noopener">TOPIX Inclusion (4931 JP): Shinnihonseiyaku</a> where the stock gained 90%+ in the ~5 months leading to the TSE1-reassignment announcement. However, in July 2020, TSE introduced more stringent new Section Transfer Requirements and TSE1 Listing Criteria adding a new layer of complexity to this prediction process, especially during the period of transition from the old rules to the new rules. In this insight, we take a look at how some of the potential TSE1 candidates will fare against these New Section Transfer Requirements and evaluate their attractiveness at the Pre-event phase. <hr><div class="content-remarks">This insight is an update to <a href="https://www.smartkarma.com/insights/topix-inclusion-pre-events-who-is-ready" target="_blank" data-smartkarma-citation="insights:41091" rel="noopener">TOPIX Inclusion Pre-Events: Who Is Ready?</a>. Please refer to that insight for more information on the approach used in the below analysis. Note that some assumptions used in the analysis have changed since then. </div>

There are currently ~1,500 stocks listed in the Mothers, JASDAQ, and Second Sections of the Tokyo Stock Exchange. As time passes, some of these stocks will "graduate" to the First Section of the Tokyo Stock Exchange (TSE1), triggering inclusion into the TOPIX Index causing passive funds tracking TOPIX to buy them on an inclusion event. This presents various trading opportunities in several phases of this event timeline.  Being able to identify such candidates at a "Pre-event" phase (before the TSE reassignment is confirmed) can unlock great value for speculative bets as we recently witnessed in the case of TOPIX Inclusion (4931 JP): Shinnihonseiyaku where the stock gained 90%+ in the ~5 months leading to the TSE1-reassignment announcement. However, in July 2020, TSE introduced more stringent new Section Transfer Requirements and TSE1 Listing Criteria adding a new layer of complexity to this prediction process, especially during the period of transition from the old rules to the new rules. In this insight, we take a look at how some of the potential TSE1 candidates will fare against these New Section Transfer Requirements and evaluate their attractiveness at the Pre-event phase. This insight is an update to TOPIX Inclusion Pre-Events: Who Is Ready?. Please refer to that insight for more information on the approach used in the below analysis. Note that some assumptions used in the analysis have changed since then. 

TOPIX Inclusions:  New Regulations! Who Is READY? 2.0

Japan

JTOWER Inc. provides wireless telecom services. The Company offers mobile telecommunication network designing, in building mobile infrastructure sharing, information platform designing, and other services. JTOWER provides its services throughout Japan.

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JTower (4485 JP)

The BIGLY TOPIX April 2022 Rebalance - $20bn One-Way Split Over 3 Months

The BIG TOPIX April 2022 Rebalance. Concurrent with the move to new structure, the TSE changed the FFW methodology to exclude cross-holdings. The...

Travis Lundy

JTower Inc - DoCoMo Tower Agreement Is a Milestone

Japan is a latecomer to infrastructure sharing but DoCoMo's tower sale to JTower changes that. Considering the latter's scale, this could take a...

Kirk Boodry

JTower Inc - NTT Tower Deal a Key Step in Expanding Its Addressable Market

The purchase of NTT towers provides revenue capacity equal to 50% of FY20 sales and confirms expansion plans highlighted at Q4. That is key for a...

Kirk Boodry

TOPIX Inclusions: New Regulations! Who Is READY? 2.0

The TSE has new Listing Rules and Criteria for TSE1 listing and promotion. That means new analysis on what pre-event trades. One TOP PICK to trade...

Janaghan Jeyakumar, CFA

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