Equity Analyst, Event-driven, Quiddity Advisors

Janaghan Jeyakumar, CFA

Equity Analyst, Event-driven

Quiddity Advisors

Pan-Asia Catalysts/Events

Event-Driven

With the Section Transfer Requirements to move to TSE1 becoming more stringent, some small-cap candidates have been rushing to enter TSE1 so that they can avoid having to face the new regulations under which they may struggle to qualify. This trend has resulted in a "flurry" of TOPIX Inclusion Trades in the month of December 2020 as <a href="https://www.smartkarma.com/profiles/travis-lundy" target="_blank" data-smartkarma-citation="accounts:25" rel="noopener">Travis Lundy</a> predicted in <a href="https://www.smartkarma.com/insights/the-tse-s-listing-criteria-revisions-part-i" target="_blank" data-smartkarma-citation="insights:43150" rel="noopener">The TSE's Listing Criteria Revisions - Part I</a>.
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For index inclusion and event traders taking advantage of a large number of interesting trades, the number will suddenly go waaaay down. This means <a href="https://www.smartkarma.com/profiles/janaghan-jeyakumar-cfa" target="_blank" data-smartkarma-citation="accounts:3173" rel="noopener">Janaghan Jeyakumar, CFA</a> likely has a flurry of interesting trade ideas to read about in the next few months, but after about March next year, things will drop off in a hurry.
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In this insight, I have provided performance updates for 11 "Live" event stocks which are expected to have Inclusion Events at the end of January 2021 and 6 "Post" event stocks that completed their Inclusion Events at the end of November 2020 and December 2020. Furthermore, I have also highlighted some interesting Pre-event situations involving stocks that are likely to become TSE1-promotion candidates in the near future.

With the Section Transfer Requirements to move to TSE1 becoming more stringent, some small-cap candidates have been rushing to enter TSE1 so that they can avoid having to face the new regulations under which they may struggle to qualify. This trend has resulted in a "flurry" of TOPIX Inclusion Trades in the month of December 2020 as Travis Lundy predicted in The TSE's Listing Criteria Revisions - Part I.

For index inclusion and event traders taking advantage of a large number of interesting trades, the number will suddenly go waaaay down. This means Janaghan Jeyakumar, CFA likely has a flurry of interesting trade ideas to read about in the next few months, but after about March next year, things will drop off in a hurry.

In this insight, I have provided performance updates for 11 "Live" event stocks which are expected to have Inclusion Events at the end of January 2021 and 6 "Post" event stocks that completed their Inclusion Events at the end of November 2020 and December 2020. Furthermore, I have also highlighted some interesting Pre-event situations involving stocks that are likely to become TSE1-promotion candidates in the near future. 

Quantitative Analysis

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When Japanese small-cap stocks listed on JASDAQ, MOTHERS, and the Second Section of the Tokyo Stock Exchange aim at the big leagues and apply for reassignment to the First Section of the Tokyo Stock Exchange and are accepted, it causes significant events to occur. This triggers inclusion into the TOPIX Index which means passive funds tracking TOPIX need to buy on an inclusion event. This opens up several interesting trading opportunities for investors. 
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In this insight, I have provided performance updates for 7 "Live" event stocks which are expected to have Inclusion Events at the end of December 2020 or January 2021 and 8 "Post" event stocks that completed their Inclusion Events at the end of October 2020 and November 2020. Furthermore, I have also highlighted some interesting Pre-event situations involving stocks that are likely to become TSE1-promotion candidates in the near future. 
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When Japanese small-cap stocks listed on JASDAQ, MOTHERS, and the Second Section of the Tokyo Stock Exchange aim at the big leagues and apply for reassignment to the First Section of the Tokyo Stock Exchange and are accepted, it causes significant events to occur. This triggers inclusion into the TOPIX Index which means passive funds tracking TOPIX need to buy on an inclusion event. This opens up several interesting trading opportunities for investors. 


In this insight, I have provided performance updates for 7 "Live" event stocks which are expected to have Inclusion Events at the end of December 2020 or January 2021 and 8 "Post" event stocks that completed their Inclusion Events at the end of October 2020 and November 2020. Furthermore, I have also highlighted some interesting Pre-event situations involving stocks that are likely to become TSE1-promotion candidates in the near future. 


Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Then-JASDAQ-listed online financial information provider <a href="https://www.smartkarma.com/entities/morningstar-japan-kk" target="_blank" data-smartkarma-citation="entities:10386:1" rel="noopener">Morningstar Japan Kk (4765 JP)</a> announced (<a href="https://www.morningstar.co.jp/company/release/pdf/prs200929_02.pdf" target="_blank" rel="noopener">J-only</a>) on 29 September they had received approval to move to the Tokyo Stock Exchange as of 19th October 2020 and they expected the move to take them to the TSE First Section which meant a TOPIX inclusion. At the same time, they announced a combination equity offering which raised some new equity capital for the company, and allowed Morningstar Inc and SBI Global Asset Management to sell down their stakes somewhat. The shares fell which meant that it appears that neither the domestic additional tranche of 1.081mm shares or the overallotment were executed. However, that means that the net overhang from the offering is somewhat reduced because those who sold shares early to the stabilization syndicate effectively filled the orders of those who bought the greenshoe as presented. That Offering was priced at a ¥20 discount against the close of ¥482 and investors bought at ¥462/share.  <section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/173/733/original/Screenshot%202020-11-24%20at%209.54.14%20PM.png?1606226722" class="editor-image img-responsive" data-smartkarma-image-id="173733"></figure></section>Tuesday 24 November was the only the fifth day in the past 32 trading days where the shares traded above the pre-offering price of ¥482/share. Volume was heavy. This sets up an interesting/odd TOPIX inclusion on Friday.

Then-JASDAQ-listed online financial information provider Morningstar Japan Kk (4765 JP) announced (J-only) on 29 September they had received approval to move to the Tokyo Stock Exchange as of 19th October 2020 and they expected the move to take them to the TSE First Section which meant a TOPIX inclusion. At the same time, they announced a combination equity offering which raised some new equity capital for the company, and allowed Morningstar Inc and SBI Global Asset Management to sell down their stakes somewhat. The shares fell which meant that it appears that neither the domestic additional tranche of 1.081mm shares or the overallotment were executed. However, that means that the net overhang from the offering is somewhat reduced because those who sold shares early to the stabilization syndicate effectively filled the orders of those who bought the greenshoe as presented. That Offering was priced at a ¥20 discount against the close of ¥482 and investors bought at ¥462/share.  Tuesday 24 November was the only the fifth day in the past 32 trading days where the shares traded above the pre-offering price of ¥482/share. Volume was heavy. This sets up an interesting/odd TOPIX inclusion on Friday.

Morningstar Japan (4765) TOPIX Inclusion - A Big Buy Against a Big Overhang

In an insight in July 2020, <a href="https://skr.ma/7bQ9n" target="_blank" rel="noopener">TOPIX Inclusion Pre-Events: Who Is Ready?</a>, I discussed the results of a screening process that identified TSE2, MOTHERS, and JASDAQ-listed stocks which were capable of satisfying most of the TSE1 Section Transfer Requirements and had a high potential to move to TSE1 in the following months.Among these stocks, I highlighted <a href="https://www.smartkarma.com/entities/shinnihonseiyaku-co-ltd" target="_blank" data-smartkarma-citation="entities:28122:1" rel="noopener">Shinnihonseiyaku Co Ltd (4931 JP)</a> to be the top pick for a pre-event bet at that time due to its potentially attractive inclusion parameters and the recent expiry of its one-year post-IPO waiting period. Since then, the stock has rallied 90%+. Today after market close, <a href="https://www.smartkarma.com/entities/shinnihonseiyaku-co-ltd" target="_blank" data-smartkarma-citation="entities:28122:1" rel="noopener">Shinnihonseiyaku Co Ltd (4931 JP)</a> announced that they have <a href="https://contents.xj-storage.jp/xcontents/AS04814/091a7183/46ee/419c/95b0/77bcfea2984e/140120201124427377.pdf" target="_blank" rel="noopener">received approval</a> to move from the Mothers Section to TSE1 or TSE2 as of 15th December 2020. In conjunction, they also announced <a href="https://contents.xj-storage.jp/xcontents/AS04814/d99a915b/14c9/455e/95ce/5dc8026ead1d/140120201124427378.pdf" target="_blank" rel="noopener">a sale of shares</a> for a total quantity of 2,070,000 shares including the over-allotment portion. Although the final market section has not been confirmed yet, we expect this to be TSE1 and we anticipate a confirmation by the company on this once the above-mentioned share sale is successfully executed.  Consequently, TSE1 reassignment would trigger inclusion into the TOPIX Index and the Inclusion Event could be at the close of trading 28th January 2021. <a href="https://www.smartkarma.com/entities/shinnihonseiyaku-co-ltd" target="_blank" data-smartkarma-citation="entities:28122:1" rel="noopener">Shinnihonseiyaku Co Ltd (4931 JP)</a> provides cosmetics, pharmaceuticals, and health foods in Japan and internationally. The company provides skincare products under the Perfect One brand and they operate through online, mail order, and direct store channels. In this insight, we take a look at the Index Inclusion Parameters and the Fundamentals of the company to evaluate the upside potential of the TOPIX Inclusion Event.

In an insight in July 2020, TOPIX Inclusion Pre-Events: Who Is Ready?, I discussed the results of a screening process that identified TSE2, MOTHERS, and JASDAQ-listed stocks which were capable of satisfying most of the TSE1 Section Transfer Requirements and had a high potential to move to TSE1 in the following months.Among these stocks, I highlighted Shinnihonseiyaku Co Ltd (4931 JP) to be the top pick for a pre-event bet at that time due to its potentially attractive inclusion parameters and the recent expiry of its one-year post-IPO waiting period. Since then, the stock has rallied 90%+. Today after market close, Shinnihonseiyaku Co Ltd (4931 JP) announced that they have received approval to move from the Mothers Section to TSE1 or TSE2 as of 15th December 2020. In conjunction, they also announced a sale of shares for a total quantity of 2,070,000 shares including the over-allotment portion. Although the final market section has not been confirmed yet, we expect this to be TSE1 and we anticipate a confirmation by the company on this once the above-mentioned share sale is successfully executed.  Consequently, TSE1 reassignment would trigger inclusion into the TOPIX Index and the Inclusion Event could be at the close of trading 28th January 2021. Shinnihonseiyaku Co Ltd (4931 JP) provides cosmetics, pharmaceuticals, and health foods in Japan and internationally. The company provides skincare products under the Perfect One brand and they operate through online, mail order, and direct store channels. In this insight, we take a look at the Index Inclusion Parameters and the Fundamentals of the company to evaluate the upside potential of the TOPIX Inclusion Event.  

TOPIX Inclusion (4931 JP): Shinnihonseiyaku

<div>
When Japanese small-cap stocks listed on JASDAQ, MOTHERS, and the Second Section of the Tokyo Stock Exchange aim at the big leagues and apply for reassignment to the First Section of the Tokyo Stock Exchange and are accepted, it causes significant events to occur.
This triggers inclusion into the TOPIX Index which means passive funds tracking TOPIX need to buy on an inclusion event. This opens up several interesting trading opportunities for investors. 
In this insight, I have provided performance updates for 3 "Live" event stocks which have announced their TSE1 move in  October 2020 and 5 "Post" event stocks that completed their Inclusion Events today and some Pre-event trades involving stocks that are likely to become TSE1-promotion candidates in the near future. 
</div>


When Japanese small-cap stocks listed on JASDAQ, MOTHERS, and the Second Section of the Tokyo Stock Exchange aim at the big leagues and apply for reassignment to the First Section of the Tokyo Stock Exchange and are accepted, it causes significant events to occur.
This triggers inclusion into the TOPIX Index which means passive funds tracking TOPIX need to buy on an inclusion event. This opens up several interesting trading opportunities for investors. 
In this insight, I have provided performance updates for 3 "Live" event stocks which have announced their TSE1 move in  October 2020 and 5 "Post" event stocks that completed their Inclusion Events today and some Pre-event trades involving stocks that are likely to become TSE1-promotion candidates in the near future. 


Japan

Morningstar Japan KK provides domestic and foreign investment information through its website. The Company focuses on providing individual investors with e-finance strategies such as fund evaluation reports, analyst reports and the Morningstar index reference guide.

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Morningstar Japan KK (4765 JP)

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