Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Bottom-Up

<ul>
<li>Yesterday, post-close, Bloomberg reported a headline "<strong>*SILCHESTER REPORTS NIKON STAKE; MAY SEEK CAPITAL POLICY CHANGES</strong>"</li>
<li>That was exciting. It was in all caps. It was activist-ish-y. Today the stock rose 10.3% and we got another article saying it was up because of Silchester's filing.</li>
<li>Beware the Bloomberg headline. Nuance is sometimes lost. They aren't always designed to help investors invest. Often, the main purpose is clickbait.</li>
</ul>


Yesterday, post-close, Bloomberg reported a headline "*SILCHESTER REPORTS NIKON STAKE; MAY SEEK CAPITAL POLICY CHANGES"
That was exciting. It was in all caps. It was activist-ish-y. Today the stock rose 10.3% and we got another article saying it was up because of Silchester's filing.
Beware the Bloomberg headline. Nuance is sometimes lost. They aren't always designed to help investors invest. Often, the main purpose is clickbait.


Nikon (7731) - Beware The Bloomberg Headline But There's Value Here

Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/shin-etsu-chemical-co-ltd" target="_blank" data-smartkarma-citation="entities:4481:1" rel="noopener">Shin Etsu Chemical (4063 JP)</a> reported Q1 earnings after the close on 27 July, and they blew the lights out. Higher margins and 10-year record high Q1 progression ratios.</li>
<li>The company also announced guidance which was pretty healthy, but progression ratios suggest it is conservative.</li>
<li>The company announced its second ¥100bn buyback in three months. This one lasts 6 months so impact will be lower, but it will have some impact.</li>
</ul>



Shin Etsu Chemical (4063 JP) reported Q1 earnings after the close on 27 July, and they blew the lights out. Higher margins and 10-year record high Q1 progression ratios.
The company also announced guidance which was pretty healthy, but progression ratios suggest it is conservative.
The company announced its second ¥100bn buyback in three months. This one lasts 6 months so impact will be lower, but it will have some impact.


Shin-Etsu Chemical (4063 JP) Salutary Earnings, Conservative Forecasts, and Another Buyback

Equity Long-Short Analyst

Pyari Menon

Thematic (Sector/Industry)

<ul>
<li>Brand recognition is a driver of margins and returns for consumer products, but developing and maintaining product superiority is of paramount importance to establish and sustain brands and market share</li>
<li>In this report, we take  look at how well companies in personal hygiene products like diapers, sanitary pads,  linings, and tampons are positioned from a technological perspective</li>
<li>
<a href="https://www.smartkarma.com/entities/procter-gamble-co" target="_blank" data-smartkarma-citation="entities:978:1" rel="noopener">Procter &amp; Gamble Co (PG US)</a>, <a href="https://www.smartkarma.com/entities/kimberly-clark-corp" target="_blank" data-smartkarma-citation="entities:2292:1" rel="noopener">Kimberly Clark (KMB US)</a> , <a href="https://www.smartkarma.com/entities/unicharm-corp" target="_blank" data-smartkarma-citation="entities:6246:1" rel="noopener">Unicharm Corp (8113 JP)</a>, <a href="https://www.smartkarma.com/entities/daio-paper-corp" target="_blank" data-smartkarma-citation="entities:3211:1" rel="noopener">Daio Paper Corp (3880 JP)</a>, and <a href="https://www.smartkarma.com/entities/kao-corp" target="_blank" data-smartkarma-citation="entities:12933:1" rel="noopener">Kao Corp (4452 JP)</a> lead the field</li>
</ul>


Brand recognition is a driver of margins and returns for consumer products, but developing and maintaining product superiority is of paramount importance to establish and sustain brands and market share
In this report, we take  look at how well companies in personal hygiene products like diapers, sanitary pads,  linings, and tampons are positioned from a technological perspective

Procter &amp; Gamble Co (PG US), Kimberly Clark (KMB US) , Unicharm Corp (8113 JP), Daio Paper Corp (3880 JP), and Kao Corp (4452 JP) lead the field


Stock Ideas from Data Mining Technical Publications: A Look at Diapers, Sanitary Pads, and Tampons

<p>Specialty chemical makers <a href="https://www.smartkarma.com/entities/nippon-shokubai-co-ltd" target="_blank" data-smartkarma-citation="entities:19373:1" rel="noopener">Nippon Shokubai (4114 JP)</a> and <a href="https://www.smartkarma.com/entities/sanyo-chemical-industries" target="_blank" data-smartkarma-citation="entities:16624:1" rel="noopener">Sanyo Chemical Industries (4471 JP)</a> have owned small stakes in each other for years. It was, at a certain point, only natural that they should gravitate to each other so that Nippon Shokubai's position as a specialized producer of basic and functional chemicals would integrate somewhat vertically with Sanyo's business of manufacturing and marketing an <em>extremely</em> broad range of performance chemicals. As competition increased at home and abroad for the business of super-absorbent polymers which have become a decent business line for both, finding synergies in production and sales made a lot of sense. </p><p>That was the story in May 2019 when the two agreed to pursue management integration. </p><p>There was a hiccup as Nippon Shokubai had to lower forecasts less than a quarter later, but by the end of November 2019, the two companies had found a share exchange ratio which seemed to me to be favorable to Nippon Shokubai compared to Sanyo Chemical. </p><p>Then Nippon Shokubai lowered its forecasts to March 2020 a second time just two months after setting the ratio. That apparently upset the Sanyo Chem CEO somewhat, as discussed in <a href="https://www.smartkarma.com/insights/sanyochem-nipponshokubai-merger-redo" target="_blank" data-smartkarma-citation="insights:38385" rel="noopener">SanyoChem/NipponShokubai - Merger Redo</a> in April 2020 when the two companies decided to delay their integration plans from October 2020 to April 2021 to review the ratio.</p><div class="content-remarks"><p>The Nikkei interviews with the the two CEOs emphasized the nature of this review differently, but the published announcement was called “Notice Regarding the Postponement of the Business Integration by Way of Joint Share Transfer Between Nippon Shokubai Co., Ltd. and Sanyo Chemical Industries, Ltd. and the Reassessment of the Share Transfer Ratio.”</p></div><h3>The NEW News</h3><p>Six months on from that announcement, the two companies yesterday <a href="https://www.sanyo-chemical.co.jp/eng/wp/wp-content/uploads/2020/10/k20201021_e.pdf" target="_blank" rel="noopener">announced</a> they would not go ahead with their business integration plans saying the worsening/uncertain external environment related to COVID-19 and lower oil/petrochem prices made it <em>"difficult to conduct the business integration." </em></p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/166/546/original/Screenshot%202020-10-21%20at%207.41.45%20PM.png?1603280519" class="editor-image img-responsive" data-smartkarma-image-id="166546"></figure></section><p>There is precious little in the media early to explain the breakup, but the fact that the two firms put out forecasts only in August after Q1, then Nippon Shokubai lowered its own fiscal year forecast <em>yet again</em> 13 days ago downgrade "significantly changed the preconditions" for the merger, said Sanyo Chemical President Takao Ando according to a Nikkei <a href="https://asia.nikkei.com/Business/Business-deals/Japan-chemical-merger-foiled-by-divergent-diaper-visions" target="_blank" rel="noopener">article</a> this morning, which continues that he was the one to bring up the idea of breaking off the deal. </p><p>Based on the friendly commentary noted, I expect that the fundamentally-justified merger ratio which would favor Sanyo Chemical a fair bit more than expected, was probably a step too far for Nippon Shokubai which could not "afford" the hit to its dignity to pay up that far. To some extent the blame must rest on Sanyo Chemical for accepting the ratio they did in the first place. It was too low to start and did not account for Sanyo Chemical's diversity, restructuring efforts in the prior 24 months, and the growth segments ahead in areas such as polymer batteries. The Nikkei article in Japanese last night pointed out there was a "temperature difference in growth strategy" (Sanyo Chemical is focussed on fostering new business growth while Shokubai is focussed on growing its existing Super Absorbent Polymer (SAP) business (together the two companies have something like 30% of the world market but Shokubai gets about 50% of its business from that while for Sanyo Chemical it is 30% and they are trying to grow more to higher value-add product lines with less competition from China and Korea (which have been ramping up their SAP capabilities).</p><p><em><strong>So the question is... What next?</strong></em></p><p>Longer-term readers of this series of insights will know my basic position. That has not changed. If you had the ratio bet on, there will be some noise because the unwinding of speculative positioning regarding the merger ratio for almost all players will involve selling Sanyo Chem and buying back Nippon Shokubai, and if anything, people might have been net long, but it is not clear to me that such speculative positions, held longer, will not continue to gain. </p><p>More below the fold.</p>

Specialty chemical makers Nippon Shokubai (4114 JP) and Sanyo Chemical Industries (4471 JP) have owned small stakes in each other for years. It was, at a certain point, only natural that they should gravitate to each other so that Nippon Shokubai's position as a specialized producer of basic and functional chemicals would integrate somewhat vertically with Sanyo's business of manufacturing and marketing an extremely broad range of performance chemicals. As competition increased at home and abroad for the business of super-absorbent polymers which have become a decent business line for both, finding synergies in production and sales made a lot of sense. That was the story in May 2019 when the two agreed to pursue management integration. There was a hiccup as Nippon Shokubai had to lower forecasts less than a quarter later, but by the end of November 2019, the two companies had found a share exchange ratio which seemed to me to be favorable to Nippon Shokubai compared to Sanyo Chemical. Then Nippon Shokubai lowered its forecasts to March 2020 a second time just two months after setting the ratio. That apparently upset the Sanyo Chem CEO somewhat, as discussed in SanyoChem/NipponShokubai - Merger Redo in April 2020 when the two companies decided to delay their integration plans from October 2020 to April 2021 to review the ratio.The Nikkei interviews with the the two CEOs emphasized the nature of this review differently, but the published announcement was called “Notice Regarding the Postponement of the Business Integration by Way of Joint Share Transfer Between Nippon Shokubai Co., Ltd. and Sanyo Chemical Industries, Ltd. and the Reassessment of the Share Transfer Ratio.”The NEW NewsSix months on from that announcement, the two companies yesterday announced they would not go ahead with their business integration plans saying the worsening/uncertain external environment related to COVID-19 and lower oil/petrochem prices made it "difficult to conduct the business integration." There is precious little in the media early to explain the breakup, but the fact that the two firms put out forecasts only in August after Q1, then Nippon Shokubai lowered its own fiscal year forecast yet again 13 days ago downgrade "significantly changed the preconditions" for the merger, said Sanyo Chemical President Takao Ando according to a Nikkei article this morning, which continues that he was the one to bring up the idea of breaking off the deal. Based on the friendly commentary noted, I expect that the fundamentally-justified merger ratio which would favor Sanyo Chemical a fair bit more than expected, was probably a step too far for Nippon Shokubai which could not "afford" the hit to its dignity to pay up that far. To some extent the blame must rest on Sanyo Chemical for accepting the ratio they did in the first place. It was too low to start and did not account for Sanyo Chemical's diversity, restructuring efforts in the prior 24 months, and the growth segments ahead in areas such as polymer batteries. The Nikkei article in Japanese last night pointed out there was a "temperature difference in growth strategy" (Sanyo Chemical is focussed on fostering new business growth while Shokubai is focussed on growing its existing Super Absorbent Polymer (SAP) business (together the two companies have something like 30% of the world market but Shokubai gets about 50% of its business from that while for Sanyo Chemical it is 30% and they are trying to grow more to higher value-add product lines with less competition from China and Korea (which have been ramping up their SAP capabilities).So the question is... What next?Longer-term readers of this series of insights will know my basic position. That has not changed. If you had the ratio bet on, there will be some noise because the unwinding of speculative positioning regarding the merger ratio for almost all players will involve selling Sanyo Chem and buying back Nippon Shokubai, and if anything, people might have been net long, but it is not clear to me that such speculative positions, held longer, will not continue to gain. More below the fold.

SanyoChem/Shokubai Deal Cancelled - The Trick Is NOT to Look Inside the Diaper

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

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.

<div><p style="text-align: center;"><strong>• BEST &amp; WORST •</strong></p></div><p>The best and worst pair from yesterday's announcements is <a href="https://www.smartkarma.com/entities/seven-i-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:1041:1" rel="noopener">Seven &amp; (3382 JP)</a>  and <a href="https://www.smartkarma.com/entities/hisamitsu-pharmaceutical-co" target="_blank" data-smartkarma-citation="entities:17008:1" rel="noopener">Hisamitsu Pharmaceutical (4530 JP)</a>. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/164/154/original/2020-10-09_05-45-20.png?1602189939" class="editor-image img-responsive" data-smartkarma-image-id="164154"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/164/155/original/2020-10-09_05-46-28.png?1602190006" class="editor-image img-responsive" data-smartkarma-image-id="164155"></figure><div class="content-caption">Source for all charts &amp; tables: Japan Analytics</div><div>
<hr>
<p style="text-align: center;"><strong>DAILY STATS</strong></p>
</div><hr><div><p style="text-align: center;"><strong>26 Quarterly Results</strong></p></div><div><ul style="list-style-type: disc;">
<li><p><strong>Results Score:</strong> 46% Positive / 0% Neutral / 54% Negative</p></li>
<li><p><strong>Average Results Score Change:</strong> -2.0 points</p></li>
<li><p><strong>Average % Change in Revenue:</strong> -3.0% Quarter YoY / -0.1% Rolling TTM YoY </p></li>
<li><p><strong>Average Operating Profit Margin Change:</strong> -3.2ppt</p></li>
<li><p><strong>Percentage Making Quarterly Losses:</strong> 19%</p></li>
</ul></div><hr><div><p style="text-align: center;"><strong>18 Annual • 9 Interim Forecasts/Revisions</strong></p></div><div><ul style="list-style-type: disc;">
<li><p><strong>Annual Forecast/Revision Score:</strong> 33% Positive / 6% Neutral / 61% Negative</p></li>
<li><p><strong>Interim Forecast/Revision Score Change:</strong> 44% Positive / 0% Neutral / 56% Negative</p></li>
<li><p><strong>Average Forecast/Revision Score Change:</strong> -5.6 point</p></li>
</ul></div>

• BEST &amp; WORST •The best and worst pair from yesterday's announcements is Seven &amp; (3382 JP)  and Hisamitsu Pharmaceutical (4530 JP). Source for all charts &amp; tables: Japan Analytics

DAILY STATS
26 Quarterly Results
Results Score: 46% Positive / 0% Neutral / 54% Negative
Average Results Score Change: -2.0 points
Average % Change in Revenue: -3.0% Quarter YoY / -0.1% Rolling TTM YoY 
Average Operating Profit Margin Change: -3.2ppt
Percentage Making Quarterly Losses: 19%
18 Annual • 9 Interim Forecasts/Revisions
Annual Forecast/Revision Score: 33% Positive / 6% Neutral / 61% Negative
Interim Forecast/Revision Score Change: 44% Positive / 0% Neutral / 56% Negative
Average Forecast/Revision Score Change: -5.6 point


🇯🇵 JAPAN • Results & Revisions: 10/​​​​​​​​​08 - Shift, Seven&I/Lawson, Hisamitsu, Nippon Shokubai

Japan

NIPPON SHOKUBAI CO., LTD. manufactures and sells basic and fine chemicals, synthetic resins, and catalysts.  The Company's products include acrylic acid, super absorbent polymers, and automobile catalysts.  Nippon Shokubai exports to Germany, US, and Singapore.

Nippon Shokubai (4114 JP)

Nikon (7731) - Beware The Bloomberg Headline But There's Value Here

Nikon is a cheap company with dual personalities, which keeps its multiple low. It has cash and securities too. Silchester bought 5% and Bloomberg...

Travis Lundy

Shin-Etsu Chemical (4063 JP) Salutary Earnings, Conservative Forecasts, and Another Buyback

Shin Etsu Chem (4063) is cheapest in a decade to peers on an EV/forward EBIT and forward PER basis. Blowout Q1 earnings and another big buyback. ex...

Travis Lundy

Stock Ideas from Data Mining Technical Publications: A Look at Diapers, Sanitary Pads, and Tampons

Spotting the innovation leaders in the hygiene aisle of the supermarkets. A look at the diaper, sanitary pads, and tampon makers.

Pyari Menon

SanyoChem/Shokubai Deal Cancelled - The Trick Is NOT to Look Inside the Diaper

The Sanyo Chem / Nippon Shokubai merger deal is... not. Yesterday the two companies decided to cancel integration plans. The SC CEO made clear that...

Travis Lundy

🇯🇵 JAPAN • Results & Revisions: 10/08 - Shift, Seven&I/Lawson, Hisamitsu, Nippon Shokubai

• BEST & WORST • The best and worst pair from yesterday's announcements is DAILY STATS 21 Quarterly Results Results Score: 62%...

Campbell Gunn

Nikon (7731) - Beware The Bloomberg Headline But There's Value Here

Nikon is a cheap company with dual personalities, which keeps its multiple low. It has cash and securities too. Silchester bought 5% and Bloomberg...

Travis Lundy

Shin-Etsu Chemical (4063 JP) Salutary Earnings, Conservative Forecasts, and Another Buyback

Shin Etsu Chem (4063) is cheapest in a decade to peers on an EV/forward EBIT and forward PER basis. Blowout Q1 earnings and another big buyback. ex...

Travis Lundy

Stock Ideas from Data Mining Technical Publications: A Look at Diapers, Sanitary Pads, and Tampons

Spotting the innovation leaders in the hygiene aisle of the supermarkets. A look at the diaper, sanitary pads, and tampon makers.

Pyari Menon

SanyoChem/Shokubai Deal Cancelled - The Trick Is NOT to Look Inside the Diaper

The Sanyo Chem / Nippon Shokubai merger deal is... not. Yesterday the two companies decided to cancel integration plans. The SC CEO made clear that...

Travis Lundy

🇯🇵 JAPAN • Results & Revisions: 10/​​​​​​​​​08 - Shift, Seven&I/Lawson, Hisamitsu, Nippon Shokubai

• BEST & WORST • The best and worst pair from yesterday's announcements is DAILY STATS 21 Quarterly Results Results Score: 62%...

Campbell Gunn

🇯🇵 JAPAN • Results & Revisions: 10/08 - Shift, Seven&I/Lawson, Hisamitsu, Nippon Shokubai