Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p><a href="https://www.smartkarma.com/profiles/janaghan-jeyakumar-cfa" target="_blank" data-smartkarma-citation="accounts:3173" rel="noopener">Janaghan Jeyakumar, CFA</a> wrote about the <a href="https://www.smartkarma.com/entities/nippon-steel-corporation" target="_blank" data-smartkarma-citation="entities:961:1" rel="noopener">Nippon Steel Corporation (5401 JP)</a> hostile partial offer for <a href="https://www.smartkarma.com/entities/tokyo-rope-mfg-co-ltd" target="_blank" data-smartkarma-citation="entities:5132:1" rel="noopener">Tokyo Rope Mfg (5981 JP)</a> last night in <a href="https://www.smartkarma.com/insights/nippon-steel-s-hostile-partial-tender-offer-for-tokyo-rope-a-move-to-mark-territory" target="_blank" data-smartkarma-citation="insights:47270" rel="noopener">Nippon Steel's HOSTILE Partial Tender Offer for Tokyo Rope: A Move to Mark Territory?</a> </p><p>It is a fascinating situation. The existing large shareholder (Nippon Steel), who was asked to be the large shareholder by the Tokyo Rope itself, and to "support" the company years ago according to the story told by Nippon Steel, has decided to bid for 10% to get to 19.9%. </p><p>This is not a number chosen at random. It gets them to the border of significance, but does not cross the threshold into Special Related Shareholder status, and under IFRS Nippon Steel <em>could</em> keep Tokyo Rope as an equity holding rather than an equity affiliate (which, if "forced" by Nippon Steel might be ill-received by Tokyo Rope (as if this bid will not be - it is quite pointed in its criticisms)).</p><p>However, Tokyo Rope may choose another route. </p><p>Some discussion, shareholder structure analysis, and Travis' Patented Arb Grids below...</p>

Janaghan Jeyakumar, CFA wrote about the Nippon Steel Corporation (5401 JP) hostile partial offer for Tokyo Rope Mfg (5981 JP) last night in Nippon Steel's HOSTILE Partial Tender Offer for Tokyo Rope: A Move to Mark Territory? It is a fascinating situation. The existing large shareholder (Nippon Steel), who was asked to be the large shareholder by the Tokyo Rope itself, and to "support" the company years ago according to the story told by Nippon Steel, has decided to bid for 10% to get to 19.9%. This is not a number chosen at random. It gets them to the border of significance, but does not cross the threshold into Special Related Shareholder status, and under IFRS Nippon Steel could keep Tokyo Rope as an equity holding rather than an equity affiliate (which, if "forced" by Nippon Steel might be ill-received by Tokyo Rope (as if this bid will not be - it is quite pointed in its criticisms)).However, Tokyo Rope may choose another route. Some discussion, shareholder structure analysis, and Travis' Patented Arb Grids below...

New Money for Old Rope? Gaming Out A Hostile Partial Offer on Tokyo Rope (5981)

'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.

Thematic (Sector/Industry)

<p style="text-align: center;"><strong>• RELATIVE PRICE SCORE OUTLIERS •</strong></p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/183/304/original/2021-01-18_07-21-17.png?1611015356" class="editor-image img-responsive" data-smartkarma-image-id="183304"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/183/305/original/2021-01-19_09-18-35.png?1611015525" class="editor-image img-responsive" data-smartkarma-image-id="183305"></figure><div class="content-caption">Source for all charts &amp; tables: Japan Analytics</div></section><p><strong>POLES APART</strong><strong>&amp; ECHOES OF 2000</strong>- As the Japanese equity market continues to rise the 'spread' between the percentage of listed companies that are OverSold (Relative Price Score &lt;-2.0) and those that are OverBought (RPS &gt; 4.0) remains at extreme levels as does the spread in terms of market weight. 7.2% of listed companies are Oversold; while 2.2% are OverBought, but the latter account for 13.7% of market value; the former just 5.4%. The last time both pairs of metrics were at these levels was the 2000 technology bubble.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/183/321/original/2021-01-19_10-25-51.png?1611019564" class="editor-image img-responsive" data-smartkarma-image-id="183321"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/183/323/original/2021-01-19_10-27-10.png?1611019660" class="editor-image img-responsive" data-smartkarma-image-id="183323"></figure></section><p><strong>BLOW OUT</strong> - As was the case in 2000, the total number of Sectors either OverBought or Oversold is also at an extreme level having peaked at 13 in December. This number has been exceeded only twice in the last fifty years  - in December 1999 (16) and February 2000 (14).   </p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/183/363/original/2021-01-19_12-45-46.png?1611027961" class="editor-image img-responsive" data-smartkarma-image-id="183363"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/183/367/original/2021-01-19_13-09-06.png?1611029374" class="editor-image img-responsive" data-smartkarma-image-id="183367"></figure></section><div><p>In the<strong> DETAIL</strong> section below, we provide an update on  Sector, Peer Group and individual company Relative Price Score trends and outliers and make some stock-specific recommendations.</p></div><div><div><div class="content-highlight"><p><strong>THE JAPAN ANALYTICS RELATIVE PRICE SCORE</strong> -  The Relative Price Score (RPS) is a measure of price performance relative to TOPIX calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices over the last 28 years and 24 months, respectively. As all companies on a comparable scale, 'Overbought' and 'Oversold' outliers and short-term changes in scoring can offer some trading opportunities. The data for all 3,919 currently-listed Companies is cap-weight-aggregated into Relative Price Scores for our 328 Peer Groups and 30 Sectors. The Overbought and Oversold outlier 'thresholds are set' at +4 &amp; -2 for Companies, +3 &amp; -1.5 for Peer Groups and +2 and -1 for Sectors, respectively. These thresholds equate with the top and bottom percentiles of over 3.2 million observations.</p></div></div></div>

• RELATIVE PRICE SCORE OUTLIERS •Source for all charts &amp; tables: Japan AnalyticsPOLES APART&amp; ECHOES OF 2000- As the Japanese equity market continues to rise the 'spread' between the percentage of listed companies that are OverSold (Relative Price Score &lt;-2.0) and those that are OverBought (RPS &gt; 4.0) remains at extreme levels as does the spread in terms of market weight. 7.2% of listed companies are Oversold; while 2.2% are OverBought, but the latter account for 13.7% of market value; the former just 5.4%. The last time both pairs of metrics were at these levels was the 2000 technology bubble.BLOW OUT - As was the case in 2000, the total number of Sectors either OverBought or Oversold is also at an extreme level having peaked at 13 in December. This number has been exceeded only twice in the last fifty years  - in December 1999 (16) and February 2000 (14).   In the DETAIL section below, we provide an update on  Sector, Peer Group and individual company Relative Price Score trends and outliers and make some stock-specific recommendations.THE JAPAN ANALYTICS RELATIVE PRICE SCORE -  The Relative Price Score (RPS) is a measure of price performance relative to TOPIX calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices over the last 28 years and 24 months, respectively. As all companies on a comparable scale, 'Overbought' and 'Oversold' outliers and short-term changes in scoring can offer some trading opportunities. The data for all 3,919 currently-listed Companies is cap-weight-aggregated into Relative Price Scores for our 328 Peer Groups and 30 Sectors. The Overbought and Oversold outlier 'thresholds are set' at +4 &amp; -2 for Companies, +3 &amp; -1.5 for Peer Groups and +2 and -1 for Sectors, respectively. These thresholds equate with the top and bottom percentiles of over 3.2 million observations.

🇯🇵 JAPAN • January Relative Price Scores -  Actionable Mean Reversion Trades

Index Rebal Trades & Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Index Rebal Trades & Special Situations

<p>Today, after market-close, <a href="https://www.smartkarma.com/entities/nippon-steel-corporation" target="_blank" data-smartkarma-citation="entities:961:1" rel="noopener">Nippon Steel Corporation (5401 JP)</a> announced a Tender Offer that could raise its stake from 9.9% to 19.9% Japan-based wire rope manufacturer <a href="https://www.smartkarma.com/entities/tokyo-rope-mfg-co-ltd" target="_blank" data-smartkarma-citation="entities:5132:1" rel="noopener">Tokyo Rope Mfg (5981 JP)</a>.  </p><p>The Offer Price is ¥1,500/share in cash and the bidder will be buying up to 1,625,000 shares in this Tender Offer.</p>

Today, after market-close, Nippon Steel Corporation (5401 JP) announced a Tender Offer that could raise its stake from 9.9% to 19.9% Japan-based wire rope manufacturer Tokyo Rope Mfg (5981 JP).  The Offer Price is ¥1,500/share in cash and the bidder will be buying up to 1,625,000 shares in this Tender Offer.

Nippon Steel's HOSTILE Partial Tender Offer for Tokyo Rope: A Move to Mark Territory?

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

MSCI Emerging Markets Index / Technical Analysis

<p>As we highlighted in last week’s <em>Int’l Compass</em>, the weight of the evidence suggests commodities are in the early stages of a new secular bull market. Global <strong>Materials </strong>remains a favorite Sector overweight and we believe outperformance is likely to continue considering the Sector’s long-term bullish RS reversal. Additionally, we are upgrading equal-weighted <strong>Energy </strong>to overweight due to bullish price and RS inflections -- add exposure with a focus on small- and mid-caps.</p>

As we highlighted in last week’s Int’l Compass, the weight of the evidence suggests commodities are in the early stages of a new secular bull market. Global Materials remains a favorite Sector overweight and we believe outperformance is likely to continue considering the Sector’s long-term bullish RS reversal. Additionally, we are upgrading equal-weighted Energy to overweight due to bullish price and RS inflections -- add exposure with a focus on small- and mid-caps.

Global Commodity-Related Equity Sectors In Secular Bull

<section class="figure"><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/169/948/original/2020-11-08_12-52-02.png?1604807697" class="editor-image img-responsive" data-smartkarma-image-id="169948"></figure><div class="content-caption">Source for all charts &amp; tables: Japan Analytics</div></section><p><strong>AUTOS ▲</strong> - Positive results and full-year upward revisions from <a href="https://www.smartkarma.com/entities/toyota-motor-corp" target="_blank" data-smartkarma-citation="entities:73:1" rel="noopener">Toyota (7203 JP)</a> and <a href="https://www.smartkarma.com/entities/honda-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:154:1" rel="noopener">Honda (7267 JP)</a> have confirmed that Japan's overall revenue and earnings momentum has bottomed and is now in an uptrend.  Although <a href="https://www.smartkarma.com/entities/nissan-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:72:1" rel="noopener">Nissan (7201 JP)</a> has yet to report, the auto assembler Peer Group's Forecast/Revision Score is at a five-year high following its largest-ever single-quarter increase. </p></section><section class="figure"><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/169/950/original/2020-11-08_13-11-05.png?1604808678" class="editor-image img-responsive" data-smartkarma-image-id="169950"></figure></section><p><strong>MARKET ▲</strong> - Since bottoming in mid-September, the  Results Score has gained 147 basis points, and the Forecast/Revision Score has rallied 509 bps. Total Market Value ex REITs has rallied to a new post-COVID high of ¥661 trillion but remains 12.6% below the 2017 peak. In TOPIX terms, the 'gap to peak' is 15.3%.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/169/951/original/2020-11-08_14-37-14.png?1604813847" class="editor-image img-responsive" data-smartkarma-image-id="169951"></figure></section><p><strong>SECTORS</strong> -  The <strong>Auto</strong> Sector joins the <strong>Machinery</strong>,<strong> Electrical Equipment</strong> Sectors as the top-three gainers. Only six Sectors have seen a decline in Score, led by <strong>Other Commercial Products</strong>, <strong>Information Technology</strong> and<strong> Non-Bank Finance</strong>.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/169/952/original/2020-11-08_14-45-33.png?1604814353" class="editor-image img-responsive" data-smartkarma-image-id="169952"></figure></section><p><strong>MULTIPLES</strong> - The uptick in forecast all0market Net Income has capped the market's forward multiple at 34 times and reduced the 'gap' to trailing earnings to ¥1.3 trillion.  </p>
<div><p style="text-align: center;"><strong>• BEST &amp; WORST •</strong></p></div>
<div><p>Our 'best' and 'worst' pairing from Friday's announcements is <a href="https://www.smartkarma.com/entities/honda-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:154:1" rel="noopener">Honda (7267 JP)</a> and <a href="https://www.smartkarma.com/entities/square-enix-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:15003:1" rel="noopener">Square Enix (9684 JP)</a> </p></div>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/169/953/original/2020-11-08_14-54-54.png?1604814911" class="editor-image img-responsive" data-smartkarma-image-id="169953"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/169/954/original/2020-11-08_15-05-04.png?1604815536" class="editor-image img-responsive" data-smartkarma-image-id="169954"></figure></section><div>
<hr>
<p style="text-align: center;"><strong>DAILY STATS</strong></p>
</div>
<div><p>Results are evenly split between positive and neutral; however, TTM revenues are still falling by 3%, and operating margins are on average 1.6 points lower. 50% of annual revisions are negative, but the average change in score has improved to a decline of 1.4 points.</p></div>
<hr>
<div><p style="text-align: center;"><strong>377 Quarterly Results</strong></p></div>
<div><ul style="list-style-type: disc;">
<li><p><strong>Results Score:</strong> 41% Positive / 8% Neutral / 51% Negative</p></li>
<li><p><strong>Average Results Score Change:</strong> -1.4 points</p></li>
<li><p><strong>Average % Change in Revenue:</strong> -6.1% Quarter YoY / -3.3% Rolling TTM YoY </p></li>
<li><p><strong>Average Operating Profit Margin Change:</strong> -1.6ppt</p></li>
<li><p><strong>Percentage Making Quarterly Losses:</strong> 21%</p></li>
</ul></div>
<hr>
<div><p style="text-align: center;"><strong>167 Annual • 22 Interim Forecasts/Revisions</strong></p></div>
<div><ul style="list-style-type: disc;">
<li><p><strong>Annual Forecast/Revision Score:</strong> 40% Positive / 10% Neutral / 50% Negative</p></li>
<li><p><strong>Interim Forecast/Revision Score Change:</strong> 68% Positive / 9% Neutral / 23% Negative</p></li>
<li><p><strong>Average Forecast/Revision Score Change:</strong> -1.4 points</p></li>
</ul></div></section>

Source for all charts &amp; tables: Japan AnalyticsAUTOS ▲ - Positive results and full-year upward revisions from Toyota (7203 JP) and Honda (7267 JP) have confirmed that Japan's overall revenue and earnings momentum has bottomed and is now in an uptrend.  Although Nissan (7201 JP) has yet to report, the auto assembler Peer Group's Forecast/Revision Score is at a five-year high following its largest-ever single-quarter increase. MARKET ▲ - Since bottoming in mid-September, the  Results Score has gained 147 basis points, and the Forecast/Revision Score has rallied 509 bps. Total Market Value ex REITs has rallied to a new post-COVID high of ¥661 trillion but remains 12.6% below the 2017 peak. In TOPIX terms, the 'gap to peak' is 15.3%.
SECTORS -  The Auto Sector joins the Machinery, Electrical Equipment Sectors as the top-three gainers. Only six Sectors have seen a decline in Score, led by Other Commercial Products, Information Technology and Non-Bank Finance.
MULTIPLES - The uptick in forecast all0market Net Income has capped the market's forward multiple at 34 times and reduced the 'gap' to trailing earnings to ¥1.3 trillion.  
• BEST &amp; WORST •
Our 'best' and 'worst' pairing from Friday's announcements is Honda (7267 JP) and Square Enix (9684 JP) 


DAILY STATS

Results are evenly split between positive and neutral; however, TTM revenues are still falling by 3%, and operating margins are on average 1.6 points lower. 50% of annual revisions are negative, but the average change in score has improved to a decline of 1.4 points.

377 Quarterly Results

Results Score: 41% Positive / 8% Neutral / 51% Negative
Average Results Score Change: -1.4 points
Average % Change in Revenue: -6.1% Quarter YoY / -3.3% Rolling TTM YoY 
Average Operating Profit Margin Change: -1.6ppt
Percentage Making Quarterly Losses: 21%


167 Annual • 22 Interim Forecasts/Revisions

Annual Forecast/Revision Score: 40% Positive / 10% Neutral / 50% Negative
Interim Forecast/Revision Score Change: 68% Positive / 9% Neutral / 23% Negative
Average Forecast/Revision Score Change: -1.4 points


🇯🇵 JAPAN • Results & Revisions 11/06 - Autos Lead the Way

Japan

Nippon Steel Corp is an integrated steel maker. The Company produces various types of steel products used for industrial machinery & equipment and exports them worldwide.  Nippon Steel provides plant construction and urban development and also develops new businesses such as chemicals, ceramics, electronic equipment and information & communication systems.

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Nippon Steel Corporation (5401 JP)

New Money for Old Rope? Gaming Out A Hostile Partial Offer on Tokyo Rope (5981)

A corporate-on-corporate hostile partial offer like Nippon Steel's for Tokyo Rope is rarer than hen's teeth, but it is not clear how Tokyo Rope can...

Travis Lundy

🇯🇵 JAPAN • January Relative Price Scores - Actionable Mean Reversion Trades

As the Japanese equity market continues to rise the 'spread' between the percentage of listed companies that are OverSold and those that are...

Campbell Gunn

Nippon Steel's HOSTILE Partial Tender Offer for Tokyo Rope: A Move to Mark Territory?

NSC is going hostile to buy 10% of Tokyo Rope. This is an unusual situation in Japan as Nippon Steel is not even going for negative control. There...

Janaghan Jeyakumar, CFA

🇯🇵 JAPAN • Results & Revisions 11/06 - Autos Lead the Way

Results are evenly split between positive and neutral; however, TTM revenues are still falling by 3%, and operating margins are on average 1.6...

Campbell Gunn

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

New Money for Old Rope? Gaming Out A Hostile Partial Offer on Tokyo Rope (5981)

A corporate-on-corporate hostile partial offer like Nippon Steel's for Tokyo Rope is rarer than hen's teeth, but it is not clear how Tokyo Rope can...

Travis Lundy

🇯🇵 JAPAN • January Relative Price Scores - Actionable Mean Reversion Trades

As the Japanese equity market continues to rise the 'spread' between the percentage of listed companies that are OverSold and those that are...

Campbell Gunn

Nippon Steel's HOSTILE Partial Tender Offer for Tokyo Rope: A Move to Mark Territory?

NSC is going hostile to buy 10% of Tokyo Rope. This is an unusual situation in Japan as Nippon Steel is not even going for negative control. There...

Janaghan Jeyakumar, CFA

Global Commodity-Related Equity Sectors In Secular Bull

We believe commodities are in the early stages of a new secular bull market. Global Materials & Energy remain our favorite Sector overweights - add...

Vermilion Research

🇯🇵 JAPAN • Results & Revisions 11/06 - Autos Lead the Way

Results are evenly split between positive and neutral; however, TTM revenues are still falling by 3%, and operating margins are on average 1.6...

Campbell Gunn