Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Capital Markets

Kioxia Holdings  / Equity Capital Markets

We had previously expressed scepticism about the targeted price (¥3,960) that Bain and Toshiba were aiming to partially exit their Kioxia stakes at. The company announced its initial price range yesterday bringing those expectations down markedly to ¥2,800-3,500. We compare these valuations with those of peers below.

We had previously expressed scepticism about the targeted price (¥3,960) that Bain and Toshiba were aiming to partially exit their Kioxia stakes at. The company announced its initial price range yesterday bringing those expectations down markedly to ¥2,800-3,500. We compare these valuations with those of peers below.

Kioxia – Is There Value at the New Pricing Range?

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

In my initial first piece on the <a href="https://www.smartkarma.com/entities/kioxia" target="_blank" data-smartkarma-citation="entities:29243:1" rel="noopener">Kioxia (6600 JP)</a> IPO on 28 August 2020 called <a href="https://www.smartkarma.com/insights/kioxia-ipo-the-flow-dynamics" target="_blank" data-smartkarma-citation="insights:42648" rel="noopener">Kioxia IPO - The Flow Dynamics</a> I talked about the nature of who was going to be buying (and who was going to be sold to).I also noted my initial reaction that the price might be too high at ¥3,960/share and an EV of close to ¥3.5trln.<blockquote>My initial reaction is that the price may be too high and it could be revised downward. Given the fact that 65% of the offering goes to international investors, who are more inclined to provide their pricing input in a negative way, I think it eminently possible that the offering could be priced lower. I would not be surprised to see an offering price 10-25% lower than the ¥3960 proffered.</blockquote><h3>A New IPO Price Range</h3>On Thursday 17 September it was reported that the Kioxia Holdings IPO Price Range would be set at ¥2800-3500/share making the new offering size top out at ¥334.3bn and the market cap at IPO price be ¥1.88trln - both top figures year-to-date in 2020. That is a drop of 11.6-29.3%, which is a bit more aggressive than I had expected. It means the immediate uplift to Toshiba is considerably smaller compared to their in-price. Since I wrote bearishly on <a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 JP)</a> exactly a month ago in <a href="https://www.smartkarma.com/insights/toshiba-topix-inclusion-jack-be-nimble-jack-be-quick" target="_blank" data-smartkarma-citation="insights:42235" rel="noopener">Toshiba TOPIX Inclusion - Jack Be Nimble, Jack Be Quick...</a> the shares are down 13.9%, but only down about 3% since <a href="https://www.smartkarma.com/insights/toshiba-kioxia-ipo-impact-activist-positioning" target="_blank" data-smartkarma-citation="insights:42638" rel="noopener">Toshiba: Kioxia IPO Impact &amp; Activist Positioning</a> on 30 August.If the market reacts not badly to the news of a possibly sharply reduced Kioxia IPO price and the corollary that lower price means lower proceeds (now and in future on a mark-to-market basis) will reduce the payout to Toshiba shareholders in terms of buying back stock could have a negative effect on Toshiba shares. That is worth watching for. It might be worth buying to cover the short. A bit lower down it is worth going long again. More below the fold.

In my initial first piece on the Kioxia (6600 JP) IPO on 28 August 2020 called Kioxia IPO - The Flow Dynamics I talked about the nature of who was going to be buying (and who was going to be sold to).I also noted my initial reaction that the price might be too high at ¥3,960/share and an EV of close to ¥3.5trln.My initial reaction is that the price may be too high and it could be revised downward. Given the fact that 65% of the offering goes to international investors, who are more inclined to provide their pricing input in a negative way, I think it eminently possible that the offering could be priced lower. I would not be surprised to see an offering price 10-25% lower than the ¥3960 proffered.A New IPO Price RangeOn Thursday 17 September it was reported that the Kioxia Holdings IPO Price Range would be set at ¥2800-3500/share making the new offering size top out at ¥334.3bn and the market cap at IPO price be ¥1.88trln - both top figures year-to-date in 2020. That is a drop of 11.6-29.3%, which is a bit more aggressive than I had expected. It means the immediate uplift to Toshiba is considerably smaller compared to their in-price. Since I wrote bearishly on Toshiba Corp (6502 JP) exactly a month ago in Toshiba TOPIX Inclusion - Jack Be Nimble, Jack Be Quick... the shares are down 13.9%, but only down about 3% since Toshiba: Kioxia IPO Impact &amp; Activist Positioning on 30 August.If the market reacts not badly to the news of a possibly sharply reduced Kioxia IPO price and the corollary that lower price means lower proceeds (now and in future on a mark-to-market basis) will reduce the payout to Toshiba shareholders in terms of buying back stock could have a negative effect on Toshiba shares. That is worth watching for. It might be worth buying to cover the short. A bit lower down it is worth going long again. More below the fold. 

As Toshiba prepares for a return to TSE1 we examine the history leading to Toshiba’s fall into what probably should have been a delisting, its rescue by a variety of foreign activist funds and subsequent efforts to then rescue its management from the demands of those very funds through a variety of efforts, none of which have quite gotten the share price to the point where those funds would exit.

As Toshiba prepares for a return to TSE1 we examine the history leading to Toshiba’s fall into what probably should have been a delisting, its rescue by a variety of foreign activist funds and subsequent efforts to then rescue its management from the demands of those very funds through a variety of efforts, none of which have quite gotten the share price to the point where those funds would exit.

NTT (Nippon Telegraph & Telephone) / Event-Driven

NTT (Nippon Telegraph & Telephone) (9432 JP)

Friday saw the announcement of a large offering by <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> of <a href="https://www.smartkarma.com/entities/softbank-corp" target="_blank" data-smartkarma-citation="entities:27445:1" rel="noopener">Softbank Corp (9434 JP)</a> shares. 
The dynamics of the offering itself - its internal flow dynamics (who buys? why? when? and who else buys later?) - were discussed in <a href="https://www.smartkarma.com/insights/softbank-corp-9434-bigger-block-offering" target="_blank" data-smartkarma-citation="insights:42689" rel="noopener">Softbank Corp (9434) BIGGER Block Offering</a>. This came a day after it was announced that <a href="https://www.smartkarma.com/entities/kioxia" target="_blank" data-smartkarma-citation="entities:29243:1" rel="noopener">Kioxia (6600 JP)</a> would sell nearly ¥400bn in an IPO to be launched in September 2020, discussed in <a href="https://www.smartkarma.com/insights/kioxia-ipo-the-flow-dynamics" target="_blank" data-smartkarma-citation="insights:42648" rel="noopener">Kioxia IPO - The Flow Dynamics</a>. 
What is not discussed is the significantly large funding trade which has to come.
There is  ¥1.47trln of Softbank Corp shares to be bought at last trade, and if the stock falls to its March low and trades at a 3% discount from there, there is still near ¥1.35trln of stock to buy. There is another ¥378bn of Kioxia to buy at the indicative IPO price. All together it is probably ¥1.7trln of stock to buy. 
That's enough money that it comes from savings rather than sofa cushions and while it is enticing to think that Japan's savers will pull $15bn from bank deposits earning 0.001% a year, what usually needs to happen is investors pull money from shares where they have a profit, and sell those to buy the next new thing.
So Japan's retail savers will have to cough up nearly ¥1.2trln for those two deals, and foreign institutional investors will have to fork over ¥600bn. 
For foreigners, that is less than 0.5% of all Japanese stock held. For retail holders, it is about 1.3% of what they hold. It is big enough to matter. 
So the question is what will they sell and what are trades we can do around that?

Friday saw the announcement of a large offering by Softbank Group (9984 JP) of Softbank Corp (9434 JP) shares. 
The dynamics of the offering itself - its internal flow dynamics (who buys? why? when? and who else buys later?) - were discussed in Softbank Corp (9434) BIGGER Block Offering. This came a day after it was announced that Kioxia (6600 JP) would sell nearly ¥400bn in an IPO to be launched in September 2020, discussed in Kioxia IPO - The Flow Dynamics. 
What is not discussed is the significantly large funding trade which has to come.
There is  ¥1.47trln of Softbank Corp shares to be bought at last trade, and if the stock falls to its March low and trades at a 3% discount from there, there is still near ¥1.35trln of stock to buy. There is another ¥378bn of Kioxia to buy at the indicative IPO price. All together it is probably ¥1.7trln of stock to buy. 
That's enough money that it comes from savings rather than sofa cushions and while it is enticing to think that Japan's savers will pull $15bn from bank deposits earning 0.001% a year, what usually needs to happen is investors pull money from shares where they have a profit, and sell those to buy the next new thing.
So Japan's retail savers will have to cough up nearly ¥1.2trln for those two deals, and foreign institutional investors will have to fork over ¥600bn. 
For foreigners, that is less than 0.5% of all Japanese stock held. For retail holders, it is about 1.3% of what they hold. It is big enough to matter. 
So the question is what will they sell and what are trades we can do around that?

Softbank & Kioxia "Replacement Trades" Iffy. Buy NTT Vs Docomo Instead

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

<a href="https://www.smartkarma.com/entities/kioxia" target="_blank" data-smartkarma-citation="entities:29243:1" rel="noopener">Kioxia (6600 JP)</a> is the world’s second-largest player in the NAND flash memory market. Toshiba Memory Corporation (TMC) officially changed its name to Kioxia on 1 October 2019. TMC was spun off from <a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 JP)</a> and acquired by KK Pangea, a special purpose company formed by a consortium led by Bain Capital for JPY2 trillion ($18 billion).<div class="content-highlight">At the indicative IPO price of JPY3,960, Kioxia will raise up to JPY378 billion ($3.6 billion) in Tokyo’s biggest stock market listing this year. The offer comprises of a primary raise of JPY85.4 billion ($0.8 billion). The secondary raise comprises of a sell-down by KK Pangea and Toshiba. The shares will list on the Tokyo Stock Exchange on 6 October. Overall, with the caveat that memory business is cyclical, we think that Kioxia’s fundamentals are attractive.</div>

Kioxia (6600 JP) is the world’s second-largest player in the NAND flash memory market. Toshiba Memory Corporation (TMC) officially changed its name to Kioxia on 1 October 2019. TMC was spun off from Toshiba Corp (6502 JP) and acquired by KK Pangea, a special purpose company formed by a consortium led by Bain Capital for JPY2 trillion ($18 billion).At the indicative IPO price of JPY3,960, Kioxia will raise up to JPY378 billion ($3.6 billion) in Tokyo’s biggest stock market listing this year. The offer comprises of a primary raise of JPY85.4 billion ($0.8 billion). The secondary raise comprises of a sell-down by KK Pangea and Toshiba. The shares will list on the Tokyo Stock Exchange on 6 October. Overall, with the caveat that memory business is cyclical, we think that Kioxia’s fundamentals are attractive.

Kioxia IPO Initiation: Not Just a Flash in the Pan

Japan

Kioxia Holdings Corporation manufactures semiconductor memory products. The Company develops, produces, and sells flash memory cards, solid state drives, secure digital memory cards, and other products. Kioxia Holdings also operates group management strategy formulation and management.

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Kioxia Holdings (285A JP)

Kioxia – Is There Value at the New Pricing Range?

We had previously expressed scepticism about the targeted price (¥3,960) that Bain and Toshiba were aiming to partially exit their Kioxia stakes...

Mio Kato

Toshiba Is A Range Trade. Still.

In my initial first piece on the $Kioxia My initial reaction is that the price may be too high and it could be revised downward. Given the fact...

Travis Lundy

Toshiba’s Troubled Timeline

As Toshiba prepares for a return to TSE1 we examine the history leading to Toshiba’s fall into what probably should have been a delisting, its...

Mio Kato

Softbank & Kioxia "Replacement Trades" Iffy. Buy NTT Vs Docomo Instead

Friday saw the announcement of a large offering by Softbank Group (9984 JP) of Softbank Corp (9434 JP) shares. The dynamics of the offering itself...

Travis Lundy

Kioxia IPO Initiation: Not Just a Flash in the Pan

Kioxia (6600 JP) is the world’s second-largest player in the NAND flash memory market. Toshiba Memory Corporation (TMC) officially changed its name...

Arun George

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