Index Rebal/Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Index Rebal/Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Index Rebalance

<div>JPX-Nikkei 400 is composed of common stocks whose main market is the TSE1, TSE2, JASDAQ, and Mothers sections (which will become the Prime Market, Standard Market, or Growth Market next April) of the Tokyo Stock Exchange. This is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents selected based on several factors including market capitalization, trading value, operating profits, and ROE.</div><div>A periodic review is conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year. This review is conducted using the final business day of June as the base date. </div><div>Quiddity provides quantitative research on pre-event basket strategies surrounding this Index Rebalance event and others. Below is a look at potential Inclusions and Removals for the JPX-Nikkei 400 Rebalance to come in August 2022 based on trading data as of end-October 2021.</div>

JPX-Nikkei 400 is composed of common stocks whose main market is the TSE1, TSE2, JASDAQ, and Mothers sections (which will become the Prime Market, Standard Market, or Growth Market next April) of the Tokyo Stock Exchange. This is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents selected based on several factors including market capitalization, trading value, operating profits, and ROE.A periodic review is conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year. This review is conducted using the final business day of June as the base date. Quiddity provides quantitative research on pre-event basket strategies surrounding this Index Rebalance event and others. Below is a look at potential Inclusions and Removals for the JPX-Nikkei 400 Rebalance to come in August 2022 based on trading data as of end-October 2021.

JPX-Nikkei 400 Rebalance 2022: Leader Board End-Oct 2021

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Equity Bottom-Up

Mebuki Financial Group / Equity Bottom-Up

Yesterday, <a href="https://www.smartkarma.com/entities/resona-holdings-inc" target="_blank" data-smartkarma-citation="entities:6841:1" rel="noopener">Resona Holdings (8308 JP)</a> announced a buyback of 2+% of shares out, in what looked like a buyback from existing cross-holders who wished to sell a large block without friction. Having offered to buy 70mm shares as discussed in <a href="https://www.smartkarma.com/insights/resona-8308-jp-buyback-respectably-large-but-looks-like-a-one-off" target="_blank" data-smartkarma-citation="insights:51331" rel="noopener">Resona (8308 JP) BUYBACK - Respectably Large But Looks Like A One-Off</a>, they bought back 62.5mm shares this AM, and they have another 25.5mm shares to buy back - roughly 2.5 days of ADV - in the next 4.5 months. That was a one-off by Resona which was "known" since last November as a mitigant against EPS dilution which would come as a result of share issuance to absorb Kansai Mirai Financial. The NEW News today is that <a href="https://www.smartkarma.com/entities/mebuki-financial-group-inc" target="_blank" data-smartkarma-citation="entities:10048:1" rel="noopener">Mebuki Financial Group (7167 JP)</a> which was formed after Joyo Bank absorbed Ashikaga Bank today announced <a href="https://www.mebuki-fg.co.jp/eng/pdf/release/20210512.pdf" target="_blank" rel="noopener">earnings</a> which were about 3% better than consensus, and forecasts for 2022 which appear about 2% lower than consensus expects for March 2022, but they also <a href="https://www.mebuki-fg.co.jp/eng/pdf/release/20210512_02.pdf" target="_blank" rel="noopener">announced a buyback</a> of up to 60 million shares spending up to ¥16bn. That is 5.17% of shares out. That is non-negligible and will bring the EPS forecast back above consensus even if pre-tax is just below. They get that started by launching a ToSTNeT-3 buyback tomorrow morning pre-open for the same 60 million shares. THAT is "implied news." It is something investors should understand, and use as a signal. There will be more of this and as a trend it is unmitigated good news for investors in Japan Inc.

Yesterday, Resona Holdings (8308 JP) announced a buyback of 2+% of shares out, in what looked like a buyback from existing cross-holders who wished to sell a large block without friction. Having offered to buy 70mm shares as discussed in Resona (8308 JP) BUYBACK - Respectably Large But Looks Like A One-Off, they bought back 62.5mm shares this AM, and they have another 25.5mm shares to buy back - roughly 2.5 days of ADV - in the next 4.5 months. That was a one-off by Resona which was "known" since last November as a mitigant against EPS dilution which would come as a result of share issuance to absorb Kansai Mirai Financial. The NEW News today is that Mebuki Financial Group (7167 JP) which was formed after Joyo Bank absorbed Ashikaga Bank today announced earnings which were about 3% better than consensus, and forecasts for 2022 which appear about 2% lower than consensus expects for March 2022, but they also announced a buyback of up to 60 million shares spending up to ¥16bn. That is 5.17% of shares out. That is non-negligible and will bring the EPS forecast back above consensus even if pre-tax is just below. They get that started by launching a ToSTNeT-3 buyback tomorrow morning pre-open for the same 60 million shares. THAT is "implied news." It is something investors should understand, and use as a signal. There will be more of this and as a trend it is unmitigated good news for investors in Japan Inc.

Mebuki Follows Resona - Bank Buyback Season Starts Strong And This Is A Good Sign

Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

Senior Bank Analyst - Japanese Banks

Windamee Research

Japanese Banks

‘Rising Innovation 2022’ is the latest 3-Year Business Plan for <a href="https://www.smartkarma.com/entities/tsukuba-bank-ltd" target="_blank" rel="noopener" data-smartkarma-citation="entities:16705:1">Tsukuba Bank (8338 JP)</a>, a small and constantly-struggling regional bank from Ibaraki Prefecture, to the northeast of Tokyo.  The bank missed all but one of its key objectives in its previous Business Plan, but there were no consequences for senior management.  No demotions or bonus cuts, no acceptance of responsibility.  Just business as usual.  Regardless of the optimistic forecasts in the new Business Plan, growth in recent years has been virtually non-existent, FY3/2019 results missed guidance by a country mile, the bank’s stock price remains close to a 52-week low, and current guidance calls for further declines in reported profits in FY3/2020.  Yet foreign investors in aggregate own around 14% of the stock.  We fail to understand why.  Caveat emptor!  (May the buyer beware!)

‘Rising Innovation 2022’ is the latest 3-Year Business Plan for Tsukuba Bank (8338 JP), a small and constantly-struggling regional bank from Ibaraki Prefecture, to the northeast of Tokyo.  The bank missed all but one of its key objectives in its previous Business Plan, but there were no consequences for senior management.  No demotions or bonus cuts, no acceptance of responsibility.  Just business as usual.  Regardless of the optimistic forecasts in the new Business Plan, growth in recent years has been virtually non-existent, FY3/2019 results missed guidance by a country mile, the bank’s stock price remains close to a 52-week low, and current guidance calls for further declines in reported profits in FY3/2020.  Yet foreign investors in aggregate own around 14% of the stock.  We fail to understand why.  Caveat emptor!  (May the buyer beware!)    

Tsukuba Bank (8338.JP): Rising Innovation, Falling Momentum: Plus Ça Change...

Event-Driven

Yesterday after the close, <a href="https://www.smartkarma.com/entities/nomura-holdings-inc" target="_blank" data-smartkarma-citation="entities:742:1">Nomura Holdings (8604 JP)</a> announced its Board of Directors had approved a <a href="https://www.nomuraholdings.com/news/nr/holdings/20190618/20190618_a.pdf" target="_blank">buyback program</a> to buy up to ¥150bn and up to 300 million shares.The period eligible for execution of the buyback will run from 19 June 2019 through 31 March 2020, though the trust agreement enabling the execution has not been signed as of the board announcement. I would not expect it to take long. Nomura has been buying back shares most every year for many years. 300 million shares is 8.6% of shares outstanding and 9.06% of shares out ex-Treasury shares.This is larger than previous buybacks and is done for obvious reasons. The broker's shares are trading a few percent off a 6+ year low, and at 0.43x tangible book. The shares are in the doldrums as full-service brokers worldwide suffer from the ongoing move to passive, ongoing difficult trading conditions in bonds and credit, and the ever-increasing competition for deals. This past year the broker suffered its first annual pre-tax loss since the massive write-downs and markdowns suffered in the year to March 2009. This came as asset management and retail brokerage business saw pre-tax income drop in half from ¥169bn to ¥84bn, but the institutional securities business saw pre-tax income drop from +¥100bn to - ¥111bn, and other expenses hit (including a ¥19.8bn settlement with the DOJ and ¥12bn of associated legal costs, an ¥11bn loss on <a href="https://www.smartkarma.com/entities/mebuki-financial-group-inc" target="_blank" data-smartkarma-citation="entities:10048:1">Mebuki Financial Group (7167 JP)</a> and a little more here and there on cross-holding impairments).Nomura Holdings may be in the dumps, but the situation is worth a cursory look at least.

Yesterday after the close, Nomura Holdings (8604 JP) announced its Board of Directors had approved a buyback program to buy up to ¥150bn and up to 300 million shares.The period eligible for execution of the buyback will run from 19 June 2019 through 31 March 2020, though the trust agreement enabling the execution has not been signed as of the board announcement. I would not expect it to take long. Nomura has been buying back shares most every year for many years. 300 million shares is 8.6% of shares outstanding and 9.06% of shares out ex-Treasury shares.This is larger than previous buybacks and is done for obvious reasons. The broker's shares are trading a few percent off a 6+ year low, and at 0.43x tangible book. The shares are in the doldrums as full-service brokers worldwide suffer from the ongoing move to passive, ongoing difficult trading conditions in bonds and credit, and the ever-increasing competition for deals. This past year the broker suffered its first annual pre-tax loss since the massive write-downs and markdowns suffered in the year to March 2009. This came as asset management and retail brokerage business saw pre-tax income drop in half from ¥169bn to ¥84bn, but the institutional securities business saw pre-tax income drop from +¥100bn to - ¥111bn, and other expenses hit (including a ¥19.8bn settlement with the DOJ and ¥12bn of associated legal costs, an ¥11bn loss on Mebuki Financial Group (7167 JP) and a little more here and there on cross-holding impairments).Nomura Holdings may be in the dumps, but the situation is worth a cursory look at least. 

Back in 2007, foreign investors in aggregate owned around 27% of the stock of <a href="https://www.smartkarma.com/entities/16705" target="_blank" data-smartkarma-citation="entities:16705:1">Tsukuba Bank (8338 JP)</a> , a small and constantly struggling regional bank from Ibaraki Prefecture: the smallest regional bank operating in the wealthy Kanto Region surrounding Tokyo.  Wisely, after a succession of guidance misses and disappointing financial results from the bank, foreigners have cut that aggregate investment to 14%.  Still not wise enough, some might say: Tsukuba Bank has considerable historic ‘form’ when it comes to failing to deliver on expectations.  FY3/2019 results missed guidance by a country mile, its stock price is perilously close to a 52-week low, and current guidance calls for further declines in reported profits in FY3/2020.  Caveat emptor!  (May the buyer beware!)

Back in 2007, foreign investors in aggregate owned around 27% of the stock of Tsukuba Bank (8338 JP) , a small and constantly struggling regional bank from Ibaraki Prefecture: the smallest regional bank operating in the wealthy Kanto Region surrounding Tokyo.  Wisely, after a succession of guidance misses and disappointing financial results from the bank, foreigners have cut that aggregate investment to 14%.  Still not wise enough, some might say: Tsukuba Bank has considerable historic ‘form’ when it comes to failing to deliver on expectations.  FY3/2019 results missed guidance by a country mile, its stock price is perilously close to a 52-week low, and current guidance calls for further declines in reported profits in FY3/2020.  Caveat emptor!  (May the buyer beware!)

Tsukuba Bank (8338 JP):  Scuba Diving on an Empty Tank

Japan

Mebuki Financial Group Inc. is a holding company established through the merger of Joyo Bank and Ashikaga Bank. As a financial group, the Company offers deposits, Loans, foreign exchange transactions, commercial and trust banking. Mebuki Financial Group also provides financial services such as letter of credit, credit cards and consulting.

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Mebuki Financial Group (7167 JP)

JPX-Nikkei 400 Rebalance 2022: Leader Board End-Oct 2021

In this insight, we take a look at the potential Inclusions and Removals for the JPX-Nikkei 400 Rebalance to come in August 2022 based on trading...

Janaghan Jeyakumar, CFA

Mebuki Follows Resona - Bank Buyback Season Starts Strong And This Is A Good Sign

A day after Resona's ToSTNeT-3 buyback to buy crossholder shares, Mebuki announces one twice as large. Could be coincidence. Could be a theme....

Travis Lundy

Tsukuba Bank (8338.JP): Rising Innovation, Falling Momentum: Plus Ça Change...

‘Rising Innovation 2022’ is the latest 3-Year Business Plan for Tsukuba Bank (8338 JP), a small and constantly-struggling regional bank from...

J. Brian Waterhouse

HUGE Nomura Holdings (8604 JP) Buyback

Yesterday after the close, Nomura Holdings (8604 JP) announced its Board of Directors had approved a buyback program to buy up to ¥150bn and up to...

Travis Lundy

Tsukuba Bank (8338 JP): Scuba Diving on an Empty Tank

Back in 2007, foreign investors in aggregate owned around 27% of the stock of Tsukuba Bank (8338 JP) , a small and constantly struggling regional...

J. Brian Waterhouse

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