Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>Since late June when I recommended to not be long Toshiba vs Peers, Toshiba has fallen 9.5% vs Peers (-6% on its own and an equal-weighted Peer Basket is +3.9%).</li>
<li>If one assumes the likelihood of a privatisation has not gone down, and the likely takeout price is the same, back-end adjusted, probability-adjusted IRRs are up 6-8%, to decent levels.</li>
<li>This changes my recommendation from Bearish to Probability-Adjusted Bullish, but it is nuanced, and it is still a range trade.</li>
</ul>


Since late June when I recommended to not be long Toshiba vs Peers, Toshiba has fallen 9.5% vs Peers (-6% on its own and an equal-weighted Peer Basket is +3.9%).
If one assumes the likelihood of a privatisation has not gone down, and the likely takeout price is the same, back-end adjusted, probability-adjusted IRRs are up 6-8%, to decent levels.
This changes my recommendation from Bearish to Probability-Adjusted Bullish, but it is nuanced, and it is still a range trade.


Toshiba (6502) Update - No Longer Worthwhile to Be Short Toshiba Vs Peers

Japan Specialist

Mark Chadwick

Equity Bottom-Up

<ul>
<li>NEC is geared into two mega-trends that will drive 9% CAGR in EBITDA through 2025 </li>
<li>NEC is a beneficiary of DX (digital transformation) in Japan and global 5G, which are both just starting to take off </li>
<li>NEC Investment Day may be short-term catalyst, but it is the undervaluation relative to the long-term opportunity that is mispriced </li>
</ul>


NEC is geared into two mega-trends that will drive 9% CAGR in EBITDA through 2025 
NEC is a beneficiary of DX (digital transformation) in Japan and global 5G, which are both just starting to take off 
NEC Investment Day may be short-term catalyst, but it is the undervaluation relative to the long-term opportunity that is mispriced 


NEC (6701) | Significantly Undervalued with Upcoming Catalyst

Thematic (Sector/Industry)

<ul>
<li>The Nikkei was flat over the past five days, while the yen strengthened from ¥136 to ¥132.5/$ </li>
<li>Sony cuts profit outlook due to weak games sales. Segment OP cut ¥50b (-16%) </li>
<li>Japan and US to enter chip alliance to develop next-generation 2-nm semiconductors </li>
</ul>


The Nikkei was flat over the past five days, while the yen strengthened from ¥136 to ¥132.5/$ 
Sony cuts profit outlook due to weak games sales. Segment OP cut ¥50b (-16%) 
Japan and US to enter chip alliance to develop next-generation 2-nm semiconductors 


Japan Stocks on the Move | M3, BayCurrent, Makita, NEC

Telco/Internet specialist

Kirk Boodry

Redex Research

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

<ul>
<li>NTT announced it would build and operate a third trans-Pacific subsea cable (JUNO) with NEC as the vendor and a 2024 activation date</li>
<li>This also represents the second trans-Pacific cable in five years and the one with the highest capacity to date</li>
<li>This is not core to NTT's business but it does highlight how capacity needs are expanding as network speeds accelerate and how those costs can be managed</li>
</ul>


NTT announced it would build and operate a third trans-Pacific subsea cable (JUNO) with NEC as the vendor and a 2024 activation date
This also represents the second trans-Pacific cable in five years and the one with the highest capacity to date
This is not core to NTT's business but it does highlight how capacity needs are expanding as network speeds accelerate and how those costs can be managed


NTT (Buy) - Some Quick Takeaways from the Subsea Cable Announcement

<ul>
<li>Overnight, <a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 JP)</a> has released an <a href="https://www.global.toshiba/content/dam/toshiba/ww/ir/corporate/news/20220719_2.pdf" target="_blank" rel="noopener">update</a> "Progress Report on Discussions with Potential Investors and Sponsors. Four advance to the second round, including both PE and strategic investors.  </li>
<li>Nikkei <a href="https://asia.nikkei.com/Spotlight/Toshiba-in-turmoil/Japan-Industrial-Partners-Bain-advance-in-bidding-for-Toshiba" target="_blank" rel="noopener">reported</a> those advancing were Bain, CVC, Brookfield, and JIP-JIC. Blackstone did not advance. Yesterday, Reuters reported that KKR had declined to bid, but might join another bid.</li>
<li>Now parties will start due diligence, and Toshiba will examine bids for "measures to enhance corporate value" and certainty of execution (given national security-sensitive issues, and funding). </li>
</ul>


Overnight, Toshiba Corp (6502 JP) has released an update "Progress Report on Discussions with Potential Investors and Sponsors. Four advance to the second round, including both PE and strategic investors.  
Nikkei reported those advancing were Bain, CVC, Brookfield, and JIP-JIC. Blackstone did not advance. Yesterday, Reuters reported that KKR had declined to bid, but might join another bid.
Now parties will start due diligence, and Toshiba will examine bids for "measures to enhance corporate value" and certainty of execution (given national security-sensitive issues, and funding). 


Toshiba (6502) Update - Shares Down Since Last Look, "News" Isn't Really. IRR Grid.

Japan

NEC Corporation manufactures and markets computers, telecommunication equipment, electronic devices, semiconductors, and software.  The Company's products include printers, modems, cellular phones, plasma display panels (PDP), network systems, memory, integrated circuits (IC), thin film transistor-liquid crystal display (TFT-LCD), and printed circuit boards (PCB). NEC operates worldwide.

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NEC Corp (6701 JP)

Toshiba (6502) Update - No Longer Worthwhile to Be Short Toshiba Vs Peers

The IRR to be obtained by buying Toshiba and expecting Probability X% of a Privatisation and (1-X%) of no deal has gone up sharply since end-June....

Travis Lundy

NEC (6701) | Significantly Undervalued with Upcoming Catalyst

NEC is a key beneficiary of DX in Japan and global 5G, which are both just starting to take off. We believe that there is at least 50% upside to...

Mark Chadwick

Japan Stocks on the Move | M3, BayCurrent, Makita, NEC

As Japan grapples with record Covid cases and marauding monkeys, we highlight the stocks that were winners and losers over the past week

Mark Chadwick

NTT (Buy) - Some Quick Takeaways from the Subsea Cable Announcement

NTT's third subsea trans-Pacific cable is the highest-capacity deployment to date and highlights how network traffic growth requires capcity...

Kirk Boodry

Toshiba (6502) Update - Shares Down Since Last Look, "News" Isn't Really. IRR Grid.

Toshiba (6502) is -8% vs Peer Basket after the late June pop on a "¥7,000 deal." Semi/memory peers weaker while industrials better. That lifts IRR...

Travis Lundy

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