Index Rebal/Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Index Rebal/Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Index Rebalance

In this insight, we take a look at the monthly performance of the trading opportunities surrounding TOPIX Index Rebalance events. After a dry spell in March and April, two new Section Transfers were announced in May 2021: <a href="https://www.smartkarma.com/entities/anshin-guarantor-service-co" target="_blank" data-smartkarma-citation="entities:33234:1" rel="noopener">Anshin Guarantor Service (7183 JP)</a> and <a href="https://www.smartkarma.com/entities/nomura-micro-science-co-ltd" target="_blank" data-smartkarma-citation="entities:11317:1" rel="noopener">Nomura Micro Science (6254 JP)</a>. On the other hand, we also witnessed some Inclusion Events resulting from TSE1 Direct Listings: <a href="https://www.smartkarma.com/entities/tess-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:32979:1" rel="noopener">Tess Holdings Co Ltd (5074 JP)</a> and <a href="https://www.smartkarma.com/entities/kibun-foods-inc" target="_blank" data-smartkarma-citation="entities:33019:1" rel="noopener">Kibun Foods Inc (2933 JP)</a>. Below is a discussion of the situations covered by Quiddity in the Pre-event, Live-event, and Post-event categories during the month of May 2021.

In this insight, we take a look at the monthly performance of the trading opportunities surrounding TOPIX Index Rebalance events. After a dry spell in March and April, two new Section Transfers were announced in May 2021: Anshin Guarantor Service (7183 JP) and Nomura Micro Science (6254 JP). On the other hand, we also witnessed some Inclusion Events resulting from TSE1 Direct Listings: Tess Holdings Co Ltd (5074 JP) and Kibun Foods Inc (2933 JP). Below is a discussion of the situations covered by Quiddity in the Pre-event, Live-event, and Post-event categories during the month of May 2021.   

Event-Driven

In January and February 2021 we saw a large wave of TSE1 Section Transfers as many small cap names rushed to get promoted before the new (and more stringent) Section Transfer Requirements were implemented (application deadline November 1, 2020). In contrast, not a single TSE1 Section Transfer was announced in the months of March and April 2021. However, during the month of April, we witnessed TSE's Annual Liquidity Factor Review which caused dozens of stocks to enjoy Index Upweights during the April-end Inclusion Event collectively amount to an estimated upweight size of approximately US$1bn. Below is a look at the performance of the TOPIX-related event trades covered by Quiddity in the Pre-event, Live-event, and Post-event categories during the month of April 2021.

In January and February 2021 we saw a large wave of TSE1 Section Transfers as many small cap names rushed to get promoted before the new (and more stringent) Section Transfer Requirements were implemented (application deadline November 1, 2020). In contrast, not a single TSE1 Section Transfer was announced in the months of March and April 2021. However, during the month of April, we witnessed TSE's Annual Liquidity Factor Review which caused dozens of stocks to enjoy Index Upweights during the April-end Inclusion Event collectively amount to an estimated upweight size of approximately US$1bn. Below is a look at the performance of the TOPIX-related event trades covered by Quiddity in the Pre-event, Live-event, and Post-event categories during the month of April 2021.  

TOPIX Inclusion Trade Summary: April 2021

In January and February we saw a large wave of TSE1 Section Transfers as many small cap names rushed to get promoted before the new (and more stringent) Section Transfer Requirements were implemented. In contrast, not a single TSE1 Section Transfer was announced in the month of March 2021. 
However, this is only the calm before the storm.
In April 2021, we are expecting dozens of companies to enjoy TOPIX Index upweights as a result of the annual liquidity factor review (and this will mean dozens of downweights too). On the other hand, although fewer companies will qualify under the new rules, small-cap companies could use M&amp;A as an alternative route to Section Transfers to meet criteria as discussed below in this insight.
Furthermore, I have discussed the changes to Quiddity's pre-events watchlist and provided performance updates for one "Live" event stock which is expected to have its Inclusion event at the end of April 2021 and 9 "Post" event stocks that completed their Inclusion Events at the end of January 2021 and February 2021.

In January and February we saw a large wave of TSE1 Section Transfers as many small cap names rushed to get promoted before the new (and more stringent) Section Transfer Requirements were implemented. In contrast, not a single TSE1 Section Transfer was announced in the month of March 2021. 
However, this is only the calm before the storm.
In April 2021, we are expecting dozens of companies to enjoy TOPIX Index upweights as a result of the annual liquidity factor review (and this will mean dozens of downweights too). On the other hand, although fewer companies will qualify under the new rules, small-cap companies could use M&amp;A as an alternative route to Section Transfers to meet criteria as discussed below in this insight.
Furthermore, I have discussed the changes to Quiddity's pre-events watchlist and provided performance updates for one "Live" event stock which is expected to have its Inclusion event at the end of April 2021 and 9 "Post" event stocks that completed their Inclusion Events at the end of January 2021 and February 2021. 

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

<a href="https://www.smartkarma.com/entities/meiko-electronics-co-ltd" target="_blank" data-smartkarma-citation="entities:20004:1" rel="noopener">Meiko Electronics (6787 JP)</a> is a Japanese designer and manufacturer of double-sided/multi-layer through-hole PCBs and slightly complex PCBs of other sorts, with factories in Japan, China, and Vietnam, and sales around the world. The products include PCBs for automotive (engine ECUs, lighting, safety, and ADAS), telecommunications (smartphones, base stations, SSDs), industrial and medical use (robots, FA, standard OA and medical equipment), and home appliances and video games. It will do everything for customers - from design to mounting/assembly and shipping.It is not a really exciting or terribly glamorous business, but it gets 10% EBITDA margins on that unglamorous business. The stock was listed on JASDAQ in 2000 but never bothered to make the jump to TSE.<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/192/845/original/Screenshot+2021-03-08+at+9.54.17+PM.png?1615211670" class="editor-image img-responsive" data-smartkarma-image-id="192845"></figure></section><div class="content-highlight">Today, Meiko announced that it had applied for such a reassignment in order to improve social creditworthiness, expand the investor base, and provide more financial flexibility.</div>This may be the first explicit application by a JASDAQ-listed stock in the new TSE1 Listing Criteria era and as a TOPIX pre-event trade, it is worth a look.

Meiko Electronics (6787 JP) is a Japanese designer and manufacturer of double-sided/multi-layer through-hole PCBs and slightly complex PCBs of other sorts, with factories in Japan, China, and Vietnam, and sales around the world. The products include PCBs for automotive (engine ECUs, lighting, safety, and ADAS), telecommunications (smartphones, base stations, SSDs), industrial and medical use (robots, FA, standard OA and medical equipment), and home appliances and video games. It will do everything for customers - from design to mounting/assembly and shipping.It is not a really exciting or terribly glamorous business, but it gets 10% EBITDA margins on that unglamorous business. The stock was listed on JASDAQ in 2000 but never bothered to make the jump to TSE.Today, Meiko announced that it had applied for such a reassignment in order to improve social creditworthiness, expand the investor base, and provide more financial flexibility.This may be the first explicit application by a JASDAQ-listed stock in the new TSE1 Listing Criteria era and as a TOPIX pre-event trade, it is worth a look.

TOPIX Inclusion Pre-Event for Meiko Electronics (6787)

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.

Delta Electronics (Thailand) / Event-Driven

<a href="https://www.smartkarma.com/entities/12688" target="_blank" data-smartkarma-citation="entities:12688:1">Delta Electronics (2308 TT)</a> (DEI) launched the conditional voluntary tender offer for <a href="https://www.smartkarma.com/entities/20912" target="_blank" data-smartkarma-citation="entities:20912:1">Delta Electronics Thai (DELTA TB)</a> (Delta), an electronics contract manufacturer, on 26 February 2019. The tender offer of THB71.00 cash per share values Delta at an EV of THB72 billion ($2.2 billion). <div class="content-highlight">Delta and DEI have close links as they were both founded by billionaire Bruce Cheng. Consequently, the tender offer could be viewed as a mechanism for the Chen family to sell their stake to a “friendly” DEI. For minority shareholders, we believe that DEI’s tender offer is reasonable and it makes little sense for minority shareholders to hold on to their shares.</div>

Delta Electronics (2308 TT) (DEI) launched the conditional voluntary tender offer for Delta Electronics Thai (DELTA TB) (Delta), an electronics contract manufacturer, on 26 February 2019. The tender offer of THB71.00 cash per share values Delta at an EV of THB72 billion ($2.2 billion). Delta and DEI have close links as they were both founded by billionaire Bruce Cheng. Consequently, the tender offer could be viewed as a mechanism for the Chen family to sell their stake to a “friendly” DEI. For minority shareholders, we believe that DEI’s tender offer is reasonable and it makes little sense for minority shareholders to hold on to their shares.

Delta Electronics (DELTA TB): Little Option but to Accept the Tender Offer

Japan

Meiko Electronics Co., Ltd. designs, manufactures, and markets printed circuit boards.  The Company also produces populated boards, board testing devices, and multi-video processors.

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Meiko Electronics (6787 JP)

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TOPIX Inclusion Pre-Event for Meiko Electronics (6787)

Meiko is a well-known design and fabrication shop for PCBs and everything related with decend margins. JASDAQ listed for 20+yrs, Meiko has applied...

Travis Lundy

Delta Electronics (DELTA TB): Little Option but to Accept the Tender Offer

Delta Electronics (2308 TT) (DEI) launched the conditional voluntary tender offer for Delta Electronics Thai (DELTA TB) (Delta), an electronics...

Arun George

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