Index Rebal Trades & Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Index Rebal Trades & Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Event-Driven

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. 

During the month of February 2021, one of the most anticipated TOPIX Inclusion candidates, <a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 JP)</a> completed its TOPIX Inclusion Event. We also saw four new names announce their TSE1 moves during this month, among which was <a href="https://www.smartkarma.com/entities/faithnetwork-co-ltd" target="_blank" data-smartkarma-citation="entities:29132:1" rel="noopener">FaithNetwork Co Ltd (3489 JP)</a> the third stock out of the four pre-event bets highlighted in <a href="https://www.smartkarma.com/insights/topix-inclusion-trade-summary-sep-2020" target="_blank" data-smartkarma-citation="insights:43700" rel="noopener">TOPIX Inclusion Trade Summary: Sep 2020</a>. During this month, we also introduced new pre-event picks to be added to our list in <a href="https://www.smartkarma.com/insights/topix-inclusions-who-is-ready-3-0" target="_blank" data-smartkarma-citation="insights:48306" rel="noopener">TOPIX Inclusions: Who Is READY? 3.0</a>. In this insight, I have provided performance updates for 4 "Live" event stocks which are expected to have Inclusion Events at the end of March/April 2021 and 17 "Post" event stocks that completed their Inclusion Events at the end of January 2021 and February 2021.

During the month of February 2021, one of the most anticipated TOPIX Inclusion candidates, Toshiba Corp (6502 JP) completed its TOPIX Inclusion Event. We also saw four new names announce their TSE1 moves during this month, among which was FaithNetwork Co Ltd (3489 JP) the third stock out of the four pre-event bets highlighted in TOPIX Inclusion Trade Summary: Sep 2020. During this month, we also introduced new pre-event picks to be added to our list in TOPIX Inclusions: Who Is READY? 3.0. In this insight, I have provided performance updates for 4 "Live" event stocks which are expected to have Inclusion Events at the end of March/April 2021 and 17 "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

Equity Capital Markets

Rakus is a digital outsourcing and cloud technology provider which concentrates on the under-served SME sector in Japan. Their main product is expense settlement software. Founded in 2000, and listed on the TSE MOTHERS exchange in December 2015 at ¥1050/share, the stock has split 2:1 every September since then, and is now ¥1650/share. It is a 25-bagger in five years. 
On Friday after the close, the company announced that the TSE had approved its application to move to the First Section of the TSE on 11 March 2021. This triggers an inclusion into the TOPIX Index at the end of April. 
The company ALSO announced an Equity Offering. 
<blockquote>
Since listing in December 2015, through discussions with a large number of investors we have been told that low liquidity and low free float ratio is a major issue for proper formation of stock prices and the improvement of corporate value, so we have asked for the cooperation of major investors and are conducting the above-mentioned stock sale for the purposes of improving liquidity.
</blockquote>
We'll see about that. 
The stock trades at 21x revenue.

Rakus is a digital outsourcing and cloud technology provider which concentrates on the under-served SME sector in Japan. Their main product is expense settlement software. Founded in 2000, and listed on the TSE MOTHERS exchange in December 2015 at ¥1050/share, the stock has split 2:1 every September since then, and is now ¥1650/share. It is a 25-bagger in five years. 
On Friday after the close, the company announced that the TSE had approved its application to move to the First Section of the TSE on 11 March 2021. This triggers an inclusion into the TOPIX Index at the end of April. 
The company ALSO announced an Equity Offering. 

Since listing in December 2015, through discussions with a large number of investors we have been told that low liquidity and low free float ratio is a major issue for proper formation of stock prices and the improvement of corporate value, so we have asked for the cooperation of major investors and are conducting the above-mentioned stock sale for the purposes of improving liquidity.

We'll see about that. 
The stock trades at 21x revenue.

Big Rakus (3923) Offering and TOPIX Inclusion

Japan Specialist

Mark Chadwick

Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/rakus-co-ltd" target="_blank" data-smartkarma-citation="entities:29200:1" rel="noopener">Rakus Co Ltd (3923 JP)</a> reported 31% sales growth in the third quarter on strong sales of its core expense settlement software. </li>
<li>The company added over 500 accounts and now services over 7,300 corporate clients.</li>
<li>Cloud adoption remains low in Japan and Rakus is well positioned to benefit from the digital transition. </li>
<li>The new Mid-Term Plan is likely to prioritise growth over profitability. Given low penetration rates and low churn, we like the growth focus. </li>
<li>For a more detailed look at the business model, please refer to <a href="https://www.smartkarma.com/insights/small-cap-growth-rakus-3923-sayonara-manual-expenses" target="_blank" data-smartkarma-citation="insights:44162" rel="noopener">Small Cap Growth: Rakus (3923) - Sayonara Manual Expenses!</a> </li>
</ul>



Rakus Co Ltd (3923 JP) reported 31% sales growth in the third quarter on strong sales of its core expense settlement software. 
The company added over 500 accounts and now services over 7,300 corporate clients.
Cloud adoption remains low in Japan and Rakus is well positioned to benefit from the digital transition. 
The new Mid-Term Plan is likely to prioritise growth over profitability. Given low penetration rates and low churn, we like the growth focus. 
For a more detailed look at the business model, please refer to Small Cap Growth: Rakus (3923) - Sayonara Manual Expenses! 


Small Cap Growth: Rakus - 42% Growth in Expense Settlement Software

<a href="https://www.smartkarma.com/entities/rakus-co-ltd" target="_blank" data-smartkarma-citation="entities:29200:1" rel="noopener">Rakus Co Ltd (3923 JP)</a>  operates a cloud-based Business Spend Management (BSM) service that helps companies and employees efficiently track and settle expenses. The expense management software, Raku Raku Seisan, helps enterprises to enhance productivity, compliance, and control overspending. The recent quarterly results confirm that top line growth continues unabated. Given the market for BSM is potentially huge in Japan and currently underpenetrated, Rakus should continue to see a strong growth trajectory in the foreseeable future.  This note looks at the strong Q2 results, while the following note looks at the Market, Moat and Management: <a href="https://www.smartkarma.com/insights/small-cap-growth-rakus-3923-sayonara-manual-expenses" target="_blank" data-smartkarma-citation="insights:44162" rel="noopener">Small Cap Growth: Rakus (3923) - Sayonara Manual Expenses!</a>

Rakus Co Ltd (3923 JP)  operates a cloud-based Business Spend Management (BSM) service that helps companies and employees efficiently track and settle expenses. The expense management software, Raku Raku Seisan, helps enterprises to enhance productivity, compliance, and control overspending.   The recent quarterly results confirm that top line growth continues unabated. Given the market for BSM is potentially huge in Japan and currently underpenetrated, Rakus should continue to see a strong growth trajectory in the foreseeable future.  This note looks at the strong Q2 results, while the following note looks at the Market, Moat and Management: Small Cap Growth: Rakus (3923) - Sayonara Manual Expenses! 

Small Cap Growth: Rakus (3923) - Q2 Sales +28%

Japan

Rakus Co.,Ltd. provides cloud service and IT engineer temp service. The Company also provides rental server services.

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Rakus Co Ltd (3923 JP)

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TOPIX Inclusion summary for Feb 2021 including performance of Feb inclusions, and March-April inclusions from announcement. Change to recommended...

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Big Rakus (3923) Offering and TOPIX Inclusion

Rakus is a fast-growing (30% CAGR in revenues) IT and cloud services provider to SMEs. It has a good niche. Moving to TSE1 and shareholders...

Travis Lundy

Small Cap Growth: Rakus - 42% Growth in Expense Settlement Software

Rakus Co Ltd (3923 JP) reported 31% sales growth in the third quarter on strong sales of its core expense settlement software.

Mark Chadwick

Small Cap Growth: Rakus (3923) - Q2 Sales +28%

Rakus helps Japanese firms and employees to track and settle expenses. Focused on smaller companies, there is a huge TAM which is under penetrated....

Mark Chadwick

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