Category

Multi Strategy

Brief Multi-Strategy: Hong Kong /Trade War/Huawei/Stimulus/Stink Bugs and more

By | Daily Briefs, Multi Strategy

In this briefing:

  1. Hong Kong /Trade War/Huawei/Stimulus/Stink Bugs
  2. What Would Happen If The Fed Cuts Rates?
  3. Budweiser Brewing Company APAC IPO: A Solid PHIP Update
  4. 🇰🇷 🇯🇵 That Was The Week That Was North Asia – 10-16th June 2019 @Smartkarma

1. Hong Kong /Trade War/Huawei/Stimulus/Stink Bugs

China News That Matters

  • Do you hear the people sing?
  • The deadline is in my head
  • A wealth of data on people, governments and companies
  • So stimulating: Beijing pushes funding for big infrastructure
  • Stink Bug vs Armyworm, amid food inflation battle 

In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.

2. What Would Happen If The Fed Cuts Rates?

As we look ahead to the FOMC meeting next week, the market has priced in three quarter-point rate cuts for 2019, with the first cut occurring at the July meeting.

A rate cut is not unexpected, as the bond market has pushed the Treasury yield curve down so far that only the 30-year Treasury bond is trading above the current Fed Funds target. It is likely too early for the Fed to cut rates at its June meeting next week, but if the market is discounting a July cut, the Fed is likely to signal it is either in agreement with that expectation or correct the market.

Rather than debate whether the Fed should cut rates, we consider the scenario of what might happen if it were to proceed with a July rate cut. What are the consequences for economic growth and the stock market?

We believe that while the Fed could decide to cut rates at its July FOMC meeting, the future path of interest rates and stock prices depends on the reasoning behind the rate cut. If the cut is in response to the eruption of a full-blown trade and economic cold war with China, it is likely to be the start of a protracted rate cut cycle, with bearish implications for equity prices. On the other hand, if the rate cut is an “insurance” cut designed to heed off further economic weakness in the face of a stalemated trade dispute, we expect the cut to be reversed relatively quickly because the global growth backdrop remains constructive. Equity prices would rise under such a scenario as the bullish implications of higher growth would overwhelm the bearish implications of higher interest rates.

3. Budweiser Brewing Company APAC IPO: A Solid PHIP Update

Volume

Budweiser Hong Kong Holding (0338867D HK)/Budweiser APAC is Anheuser Busch Inbev Sa/Nv (ABI BB)’s Asian business and is the largest beer company by retail sales value based in the Asia Pacific, according to GlobalData. On Thursday, Budweiser APAC received HKEX approval for a Hong Kong IPO to raise $5-10 billion, according to press reports.

In our IPO initiation note, we concluded that Budweiser APAC fundamentals are strong. The PHIP update which outlines 1Q19 financials reinforces our view).

4. 🇰🇷 🇯🇵 That Was The Week That Was North Asia – 10-16th June 2019 @Smartkarma

2019 06 12 19 11 00

TW3 NORTH ASIA 10-16TH JUNE

Smartkarma’s North Asian Insight providers were overwhelmingly bullish this week. In the Event-Driven space, Sanghyun Park provided an update on the Nexon Sale, and Michael Causton gave an excellent overview of the M&A permutations for Japan’s listed Drugstore companies. Douglas Kim reviews SKC’s purchase of KCFT and suggests that the SK Group appears intent on making more big M&A deals where it wants to have a leading presence – in this case in vertically integrating the lithium-ion batteries/components/materials.  Also in Korea, KCGI’s move on Hanjin Kal is running into funding problems, while a 3% stake has recently by purchased by Goldman Sachs, with the rumoured end-buyer being Delta Airlines.  

Only one IPO was commented on – Oshadhi Kumarasiri casts a dubious eye over the upcoming Shin-nihon-seiyaku Co Ltd (4931 JP) deal and suggests that management maybe selling out ahead of the peaking of the company main, and so-far only brand, Perfect One.

Bullish Equity Bottom-Up comments were published on Nissan (7201 JP), Renesas Electronics (6723 JP), Rakuten (4755 JP), Hitachi (6501 JP), Modec(6269 JP), Nintendo (7974 JP), and Life (8194 JP). Only ZOZO (3092 JP) saw (another) bearish call.

Bullish Thematic & Strategy Insights were released on Japanese Telcos from Kirk Boodry – highlighting another regulatory-driven boost for Rakuten, while Sanghyun Park delved into the murky world of high-speed trading (HST) in Korea where Citadel and Merrill Lynch have made some controversial moves. In Japan, HST has recently been regulated with all operators required to establish an onshore entity or appoint a local agent and meet stringent reporting requirements governing their trading activities. Perhaps Korea should follow this example? Lastly, this author updated his Relative Price Score data, although these Insights are not summarised below.  


EVENT DRIVEN: BULLISH

Nexon Sale: Current Status Checkup

Drug-Fuelled Marriages and Macho Shachos in Japan

Korea M&A Spotlight: SKC Acquires KCFT for $1 Billion

EVENT DRIVEN: BEARISH

Hanjin Kal Special Situation: KCGI’s Takeover Is Tougher than Previously Appeared

IPOs & PLACEMENTS: BEARISH

Shinnihonseiyaku IPO: Perfect One, Not So Perfect Afterall

EQUITY BOTTOM UP: BULLISH

Nissan: Chances of the Alliance Surviving Have Dimmed Greatly

Renesas: Factory Automation and Aircon Inventory Adjustments to Take Time

Rakuten Pay Winning the Japanese Cashless War?

Hitachi Ltd. (6501 JP): Share Price Up on Restructuring News

MODEC: On Track to Win Roughly Half of Its Bids

Switch Production to Move From China; Nintendo Plunges After Dull E3 Presentation

Life Corp Ties with Amazon Japan

EQUITY BOTTOM UP: BEARISH

Zozo: The Underlying Operating Metrics Worry Us

THEMATIC & STRATEGY: BULLISH

Japan Telcos – Lower Cap for Early Cancellation: Positive for Rakuten

Algorithm Trading on KOSDAQ: Citadel Fund Case Checkup

THEMATIC & STRATEGY: BEARISH

🇯🇵 Japan • June Relative Price Scores: Market, Sectors & Peer Groups – More of The Same

🇯🇵 Japan • Relative Price Scores – Overbought & Oversold Companies – June 2019

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Multi-Strategy: The Week that Was in [email protected] – Singapore’s Stagnation, Vietnam Rocks, and Indonesian Telcos and more

By | Daily Briefs, Multi Strategy

In this briefing:

  1. The Week that Was in [email protected] – Singapore’s Stagnation, Vietnam Rocks, and Indonesian Telcos
  2. DouYu IPO: Bull/​​​​Bear DCF Scenarios
  3. Douyu IPO: Cost Structure Disadvantage Vs. Huya Implies a Discount Not Premium Is Appropriate
  4. Weekly Oil Views: Barry Didn’t Chase the Bears Away
  5. CloudMinds IPO Initiation: Computer Says No

1. The Week that Was in [email protected] – Singapore’s Stagnation, Vietnam Rocks, and Indonesian Telcos

This past week’s offering of Insights across [email protected] is filled with another eclectic mix of differentiated, substantive and actionable insights from across South East Asia and includes macro, top-down and thematic pieces, as well as actionable equity bottom-up pieces. Please find a brief summary below, with a fuller write up in the detailed section.

Macro Insights

In Singapore Is the First Domino to Fall Towards Stagnation (Approaching Recession), CrossASEAN Economist Prasenjit K. Basu revisits the Singapore economic outlook in light of recent indicative numbers that suggest that the economy has stalled. 

In Coal Faces Disarray / Nursalims’ Reprieve? / Bantleman’s Clemency / 2 Ministers Rebuked, CrossASEAN Indght Provider Kevin O’Rourke comments on the most important political and economic developments in Indonesia over the past week. 

In Taking Off: Vietnamese Exports Are Rocking and Rolling,Dr. Jim Walker zeros in on the picture for Asia Exports as the US-China Trade War continues to simmer. 

In Thai Macro Watch: Huawei, Trade Wars, and More, our Thai Guru Athaporn Arayasantiparb, CFA looks at five news on the global front that may impact Thai equities directly or indirectly.

Equity Bottom-Up Insights

In Erajaya Swasembada (ERAA IJ) – Smoke Signals for Impending Catalysts, CrossASEAN Insight Provider Angus Mackintosh circles back to Indonesia’s leading smartphone retailer and finds plenty to cheer about after a conversation with management. 

In EGM Alliance Mineral (AMS SP): Galaxy Investment Approved by Shareholders. Next Stop: Full Takeover?,Nicolas Van Broekhoven revisits Alliance Mineral Assets (AMS SP) after attending the company’s recent EGM. 

In Indofood (ICBP IJ) – Big Daddy of Branded Food in Indonesia; Proxy for Consumer Food Spend, Consumer specialist Devi Subhakesan takes a close look at this leading Indonesian staples player. 

In Health Management Int’l Privatisation – Easy Peasy,Travis Lundy zeros in on this potential privatisation event. 

In IPO Radar: S Hotels & Resorts, Singha’s Hospitality Arm,Athaporn Arayasantiparb, CFA takes a close look at the upcoming IPO of Singha Group’s hotel arm. 

In Thanachart and TMB: On the Defensive. An Insurance Policy for Challenging Times, Banking Specialist looks at this impending merger of these two major financial institutions in Thailand. 

In StubWorld: Just Rumours (For Now) As SIA Engineering Pops,David Blennerhassett examines the possibility of privatisation of Sia Engineering (SIE SP). Sia Engineering (SIE SP) is not aware of any information, however last week’s 15% gain in two days rekindles privatisation talks by Singapore Airlines (SIA SP)

In Ascott & Ascendas Hospitality Merger – Not Unexpected and Should Be Easy,Travis Lundy looks at this proposed merger, which would create the largest hospitality trust in Asian Pac. 

Sector and Thematic Insights

In Indonesian Telecoms: The Recovery Continued in 1Q and We Expect It to Last, our friends at New Street Research circle back to the Indonesian Telco sector post 1Q19 results and maintain an upbeat view on the prospects for an increasingly data-driven market.

In Singapore REIT – Cautious Search for High Yield, property specialist Anni Kum revisits the REIT sector and identifies her top picks. 

In REIT Discover: Prime US REIT IPO Brief Review,Anni Kum takes a look at the initial public offer (IPO) of Prime Us Reit (PRIME SP)

2. DouYu IPO: Bull/​​​​Bear DCF Scenarios

Sensitivity

Douyu International Holdings (DOYU US) is a leading game live streaming platform in China with a focus on e-sports content. DouYu which announced its IPO price range of $11.50-14.00 per ADS, will price its IPO on 16 July. 

In our valuation note, we stated that we would participate in the IPO at most at the mid-point of the proposed IPO valuation range. Our DCF analysis outlined in this note suggests a base-case valuation of $12.42 per ADS, 3% downside from the mid-point of the IPO price range. Our DCF sensitivity suggests that the top-end of the IPO price while achievable, prices in ambitious execution. 

3. Douyu IPO: Cost Structure Disadvantage Vs. Huya Implies a Discount Not Premium Is Appropriate

3

Douyu plans to list on the 16th of July on Nasdaq. Proceeds of the IPO are expected to be utilised to expand on content genres offered and provide premium esports content, improve existing technologies and big data analytics, invest in marketing activities and for general corporate purposes. At the mid-point of the offer price range, the company will raise approx. USD572.8m to carry out the above-mentioned investment activities.

Douyu mainly competes with Huya in the game streaming landscape in China. Huya listed in the US in May 2018 and the company has managed to make an operating profit and raise its gross profits in the last year. Meanwhile, Douyu continues to struggle to make operating profits, having just achieved gross profit status in the last fiscal year. Even though the company has a higher user base than Huya, Douyu continues to suffer with regards to efficiently managing costs related to revenue sharing fees and content costs.

Huya’s topline and bottomline performance seems much more favourable to us than Douyu’s. According to our estimates, Douyu has an EV of USD3,498m, which iterates to an FY1 EV/sales multiple of 4.4x, which we believe is expensive compared to peers. In comparison, peers Huya and iQiyi are trading at cheaper multiples of 3.4x and 3.1x respectively. 

4. Weekly Oil Views: Barry Didn’t Chase the Bears Away

Screen%20shot%202019 07 14%20at%203.21.08%20pm

It is the Atlantic hurricane season and severe tropical storms in the US Gulf of Mexico, depending on the damage and disruption to oil facilities caused by them, can be expected to splash the market with bouts of bullishness.  

The approach of Tropical Storm Barry (which reached hurricane strength as it made landfall in Louisiana), helped by the report of an unexpectedly large weekly drawdown in US crude inventories, prompted a 4-4.5% spike in crude prices last Wednesday. But the rally stalled as the week drew to a close.

It may have been expectations of no major disruption to oil facilities in the wake of Barry as the picture on the storm became clearer, that put a lid on crude’s rise. But perhaps more significantly, the market remained focused on the oversupply prognosis of all three major forecasters — the EIA, OPEC and IEA — in their latest monthly reports last week.

The oil bears may have temporarily taken shelter from Barry, but with the disruption to crude and refined product facilities in and around the US Gulf expected to be minor (if any) and short-lived, we expect them to remain in control.

5. CloudMinds IPO Initiation: Computer Says No

Rev%20by%20type

CloudMinds (CMDS US) offers an end-to-end cloud robot system which is capable of operating consumer service robots, which include both in-house and third-party robots. It is backed by Softbank Group (9984 JP)’s Vision Fund, which is a 34.6% shareholder.

CloudMinds is big on vision and buzzword-laden rhetoric. Overall, we believe that CloudMinds is not an IPO for the faint-hearted, and it is not yet ready for the unforgiving glare of the public markets.

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Multi-Strategy: DouYu IPO: Bull/​​​​Bear DCF Scenarios and more

By | Daily Briefs, Multi Strategy

In this briefing:

  1. DouYu IPO: Bull/​​​​Bear DCF Scenarios
  2. Douyu IPO: Cost Structure Disadvantage Vs. Huya Implies a Discount Not Premium Is Appropriate
  3. Weekly Oil Views: Barry Didn’t Chase the Bears Away
  4. CloudMinds IPO Initiation: Computer Says No
  5. The Role of Election Polls, Credit Ratings, & KOSPI on Pressuring Moon Jae-In to Change His Mind

1. DouYu IPO: Bull/​​​​Bear DCF Scenarios

Dcf

Douyu International Holdings (DOYU US) is a leading game live streaming platform in China with a focus on e-sports content. DouYu which announced its IPO price range of $11.50-14.00 per ADS, will price its IPO on 16 July. 

In our valuation note, we stated that we would participate in the IPO at most at the mid-point of the proposed IPO valuation range. Our DCF analysis outlined in this note suggests a base-case valuation of $12.42 per ADS, 3% downside from the mid-point of the IPO price range. Our DCF sensitivity suggests that the top-end of the IPO price while achievable, prices in ambitious execution. 

2. Douyu IPO: Cost Structure Disadvantage Vs. Huya Implies a Discount Not Premium Is Appropriate

5

Douyu plans to list on the 16th of July on Nasdaq. Proceeds of the IPO are expected to be utilised to expand on content genres offered and provide premium esports content, improve existing technologies and big data analytics, invest in marketing activities and for general corporate purposes. At the mid-point of the offer price range, the company will raise approx. USD572.8m to carry out the above-mentioned investment activities.

Douyu mainly competes with Huya in the game streaming landscape in China. Huya listed in the US in May 2018 and the company has managed to make an operating profit and raise its gross profits in the last year. Meanwhile, Douyu continues to struggle to make operating profits, having just achieved gross profit status in the last fiscal year. Even though the company has a higher user base than Huya, Douyu continues to suffer with regards to efficiently managing costs related to revenue sharing fees and content costs.

Huya’s topline and bottomline performance seems much more favourable to us than Douyu’s. According to our estimates, Douyu has an EV of USD3,498m, which iterates to an FY1 EV/sales multiple of 4.4x, which we believe is expensive compared to peers. In comparison, peers Huya and iQiyi are trading at cheaper multiples of 3.4x and 3.1x respectively. 

3. Weekly Oil Views: Barry Didn’t Chase the Bears Away

Screen%20shot%202019 07 14%20at%203.21.08%20pm

It is the Atlantic hurricane season and severe tropical storms in the US Gulf of Mexico, depending on the damage and disruption to oil facilities caused by them, can be expected to splash the market with bouts of bullishness.  

The approach of Tropical Storm Barry (which reached hurricane strength as it made landfall in Louisiana), helped by the report of an unexpectedly large weekly drawdown in US crude inventories, prompted a 4-4.5% spike in crude prices last Wednesday. But the rally stalled as the week drew to a close.

It may have been expectations of no major disruption to oil facilities in the wake of Barry as the picture on the storm became clearer, that put a lid on crude’s rise. But perhaps more significantly, the market remained focused on the oversupply prognosis of all three major forecasters — the EIA, OPEC and IEA — in their latest monthly reports last week.

The oil bears may have temporarily taken shelter from Barry, but with the disruption to crude and refined product facilities in and around the US Gulf expected to be minor (if any) and short-lived, we expect them to remain in control.

4. CloudMinds IPO Initiation: Computer Says No

Cloud%20robot

CloudMinds (CMDS US) offers an end-to-end cloud robot system which is capable of operating consumer service robots, which include both in-house and third-party robots. It is backed by Softbank Group (9984 JP)’s Vision Fund, which is a 34.6% shareholder.

CloudMinds is big on vision and buzzword-laden rhetoric. Overall, we believe that CloudMinds is not an IPO for the faint-hearted, and it is not yet ready for the unforgiving glare of the public markets.

5. The Role of Election Polls, Credit Ratings, & KOSPI on Pressuring Moon Jae-In to Change His Mind

Polls

In this report, we provide a detailed analysis of the key factors/events that could cause Moon Jae-In to change his mind to become more friendly with Japan instead of maintaining his hostile position.

MAIN THESIS – Moon Jae-In is not likely to change his current hostile position towards Japan if the election polls, stock market, sovereign credit ratings do not change materially from where they are today. 

If the stock market drops a lot more, the global credit rating agencies such as Moody’s and S&P lower their sovereign credit rating of South Korea, and the major election polls significantly lower the chances of the ruling Democratic Party of Korea winning in the next National Assembly Election to its chief rival – the conservative Liberty Korea Party, then the chief members of the ruling Democratic Party of Korea could eventually pressure President Moon to change his mind so that that he starts to engage in more friendly policies towards Japan, flies over to Japan, shakes hands with Abe, and makes pleas to finally resolve this serious economic and political crisis between the two powers in East Asia. 

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Multi-Strategy: What Would Happen If The Fed Cuts Rates? and more

By | Daily Briefs, Multi Strategy

In this briefing:

  1. What Would Happen If The Fed Cuts Rates?
  2. Budweiser Brewing Company APAC IPO: A Solid PHIP Update
  3. 🇰🇷 🇯🇵 That Was The Week That Was North Asia – 10-16th June 2019 @Smartkarma

1. What Would Happen If The Fed Cuts Rates?

As we look ahead to the FOMC meeting next week, the market has priced in three quarter-point rate cuts for 2019, with the first cut occurring at the July meeting.

A rate cut is not unexpected, as the bond market has pushed the Treasury yield curve down so far that only the 30-year Treasury bond is trading above the current Fed Funds target. It is likely too early for the Fed to cut rates at its June meeting next week, but if the market is discounting a July cut, the Fed is likely to signal it is either in agreement with that expectation or correct the market.

Rather than debate whether the Fed should cut rates, we consider the scenario of what might happen if it were to proceed with a July rate cut. What are the consequences for economic growth and the stock market?

We believe that while the Fed could decide to cut rates at its July FOMC meeting, the future path of interest rates and stock prices depends on the reasoning behind the rate cut. If the cut is in response to the eruption of a full-blown trade and economic cold war with China, it is likely to be the start of a protracted rate cut cycle, with bearish implications for equity prices. On the other hand, if the rate cut is an “insurance” cut designed to heed off further economic weakness in the face of a stalemated trade dispute, we expect the cut to be reversed relatively quickly because the global growth backdrop remains constructive. Equity prices would rise under such a scenario as the bullish implications of higher growth would overwhelm the bearish implications of higher interest rates.

2. Budweiser Brewing Company APAC IPO: A Solid PHIP Update

Volume

Budweiser Hong Kong Holding (0338867D HK)/Budweiser APAC is Anheuser Busch Inbev Sa/Nv (ABI BB)’s Asian business and is the largest beer company by retail sales value based in the Asia Pacific, according to GlobalData. On Thursday, Budweiser APAC received HKEX approval for a Hong Kong IPO to raise $5-10 billion, according to press reports.

In our IPO initiation note, we concluded that Budweiser APAC fundamentals are strong. The PHIP update which outlines 1Q19 financials reinforces our view).

3. 🇰🇷 🇯🇵 That Was The Week That Was North Asia – 10-16th June 2019 @Smartkarma

2019 06 12 19 11 00

TW3 NORTH ASIA 10-16TH JUNE

Smartkarma’s North Asian Insight providers were overwhelmingly bullish this week. In the Event-Driven space, Sanghyun Park provided an update on the Nexon Sale, and Michael Causton gave an excellent overview of the M&A permutations for Japan’s listed Drugstore companies. Douglas Kim reviews SKC’s purchase of KCFT and suggests that the SK Group appears intent on making more big M&A deals where it wants to have a leading presence – in this case in vertically integrating the lithium-ion batteries/components/materials.  Also in Korea, KCGI’s move on Hanjin Kal is running into funding problems, while a 3% stake has recently by purchased by Goldman Sachs, with the rumoured end-buyer being Delta Airlines.  

Only one IPO was commented on – Oshadhi Kumarasiri casts a dubious eye over the upcoming Shin-nihon-seiyaku Co Ltd (4931 JP) deal and suggests that management maybe selling out ahead of the peaking of the company main, and so-far only brand, Perfect One.

Bullish Equity Bottom-Up comments were published on Nissan (7201 JP), Renesas Electronics (6723 JP), Rakuten (4755 JP), Hitachi (6501 JP), Modec(6269 JP), Nintendo (7974 JP), and Life (8194 JP). Only ZOZO (3092 JP) saw (another) bearish call.

Bullish Thematic & Strategy Insights were released on Japanese Telcos from Kirk Boodry – highlighting another regulatory-driven boost for Rakuten, while Sanghyun Park delved into the murky world of high-speed trading (HST) in Korea where Citadel and Merrill Lynch have made some controversial moves. In Japan, HST has recently been regulated with all operators required to establish an onshore entity or appoint a local agent and meet stringent reporting requirements governing their trading activities. Perhaps Korea should follow this example? Lastly, this author updated his Relative Price Score data, although these Insights are not summarised below.  


EVENT DRIVEN: BULLISH

Nexon Sale: Current Status Checkup

Drug-Fuelled Marriages and Macho Shachos in Japan

Korea M&A Spotlight: SKC Acquires KCFT for $1 Billion

EVENT DRIVEN: BEARISH

Hanjin Kal Special Situation: KCGI’s Takeover Is Tougher than Previously Appeared

IPOs & PLACEMENTS: BEARISH

Shinnihonseiyaku IPO: Perfect One, Not So Perfect Afterall

EQUITY BOTTOM UP: BULLISH

Nissan: Chances of the Alliance Surviving Have Dimmed Greatly

Renesas: Factory Automation and Aircon Inventory Adjustments to Take Time

Rakuten Pay Winning the Japanese Cashless War?

Hitachi Ltd. (6501 JP): Share Price Up on Restructuring News

MODEC: On Track to Win Roughly Half of Its Bids

Switch Production to Move From China; Nintendo Plunges After Dull E3 Presentation

Life Corp Ties with Amazon Japan

EQUITY BOTTOM UP: BEARISH

Zozo: The Underlying Operating Metrics Worry Us

THEMATIC & STRATEGY: BULLISH

Japan Telcos – Lower Cap for Early Cancellation: Positive for Rakuten

Algorithm Trading on KOSDAQ: Citadel Fund Case Checkup

THEMATIC & STRATEGY: BEARISH

🇯🇵 Japan • June Relative Price Scores: Market, Sectors & Peer Groups – More of The Same

🇯🇵 Japan • Relative Price Scores – Overbought & Oversold Companies – June 2019

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Multi-Strategy: Budweiser Brewing Company APAC IPO: A Solid PHIP Update and more

By | Daily Briefs, Multi Strategy

In this briefing:

  1. Budweiser Brewing Company APAC IPO: A Solid PHIP Update
  2. 🇰🇷 🇯🇵 That Was The Week That Was North Asia – 10-16th June 2019 @Smartkarma

1. Budweiser Brewing Company APAC IPO: A Solid PHIP Update

Volume

Budweiser Hong Kong Holding (0338867D HK)/Budweiser APAC is Anheuser Busch Inbev Sa/Nv (ABI BB)’s Asian business and is the largest beer company by retail sales value based in the Asia Pacific, according to GlobalData. On Thursday, Budweiser APAC received HKEX approval for a Hong Kong IPO to raise $5-10 billion, according to press reports.

In our IPO initiation note, we concluded that Budweiser APAC fundamentals are strong. The PHIP update which outlines 1Q19 financials reinforces our view).

2. 🇰🇷 🇯🇵 That Was The Week That Was North Asia – 10-16th June 2019 @Smartkarma

2019 06 12 19 11 00

TW3 NORTH ASIA 10-16TH JUNE

Smartkarma’s North Asian Insight providers were overwhelmingly bullish this week. In the Event-Driven space, Sanghyun Park provided an update on the Nexon Sale, and Michael Causton gave an excellent overview of the M&A permutations for Japan’s listed Drugstore companies. Douglas Kim reviews SKC’s purchase of KCFT and suggests that the SK Group appears intent on making more big M&A deals where it wants to have a leading presence – in this case in vertically integrating the lithium-ion batteries/components/materials.  Also in Korea, KCGI’s move on Hanjin Kal is running into funding problems, while a 3% stake has recently by purchased by Goldman Sachs, with the rumoured end-buyer being Delta Airlines.  

Only one IPO was commented on – Oshadhi Kumarasiri casts a dubious eye over the upcoming Shin-nihon-seiyaku Co Ltd (4931 JP) deal and suggests that management maybe selling out ahead of the peaking of the company main, and so-far only brand, Perfect One.

Bullish Equity Bottom-Up comments were published on Nissan (7201 JP), Renesas Electronics (6723 JP), Rakuten (4755 JP), Hitachi (6501 JP), Modec(6269 JP), Nintendo (7974 JP), and Life (8194 JP). Only ZOZO (3092 JP) saw (another) bearish call.

Bullish Thematic & Strategy Insights were released on Japanese Telcos from Kirk Boodry – highlighting another regulatory-driven boost for Rakuten, while Sanghyun Park delved into the murky world of high-speed trading (HST) in Korea where Citadel and Merrill Lynch have made some controversial moves. In Japan, HST has recently been regulated with all operators required to establish an onshore entity or appoint a local agent and meet stringent reporting requirements governing their trading activities. Perhaps Korea should follow this example? Lastly, this author updated his Relative Price Score data, although these Insights are not summarised below.  


EVENT DRIVEN: BULLISH

Nexon Sale: Current Status Checkup

Drug-Fuelled Marriages and Macho Shachos in Japan

Korea M&A Spotlight: SKC Acquires KCFT for $1 Billion

EVENT DRIVEN: BEARISH

Hanjin Kal Special Situation: KCGI’s Takeover Is Tougher than Previously Appeared

IPOs & PLACEMENTS: BEARISH

Shinnihonseiyaku IPO: Perfect One, Not So Perfect Afterall

EQUITY BOTTOM UP: BULLISH

Nissan: Chances of the Alliance Surviving Have Dimmed Greatly

Renesas: Factory Automation and Aircon Inventory Adjustments to Take Time

Rakuten Pay Winning the Japanese Cashless War?

Hitachi Ltd. (6501 JP): Share Price Up on Restructuring News

MODEC: On Track to Win Roughly Half of Its Bids

Switch Production to Move From China; Nintendo Plunges After Dull E3 Presentation

Life Corp Ties with Amazon Japan

EQUITY BOTTOM UP: BEARISH

Zozo: The Underlying Operating Metrics Worry Us

THEMATIC & STRATEGY: BULLISH

Japan Telcos – Lower Cap for Early Cancellation: Positive for Rakuten

Algorithm Trading on KOSDAQ: Citadel Fund Case Checkup

THEMATIC & STRATEGY: BEARISH

🇯🇵 Japan • June Relative Price Scores: Market, Sectors & Peer Groups – More of The Same

🇯🇵 Japan • Relative Price Scores – Overbought & Oversold Companies – June 2019

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Multi-Strategy: Douyu IPO: Cost Structure Disadvantage Vs. Huya Implies a Discount Not Premium Is Appropriate and more

By | Daily Briefs, Multi Strategy

In this briefing:

  1. Douyu IPO: Cost Structure Disadvantage Vs. Huya Implies a Discount Not Premium Is Appropriate
  2. Weekly Oil Views: Barry Didn’t Chase the Bears Away
  3. CloudMinds IPO Initiation: Computer Says No
  4. The Role of Election Polls, Credit Ratings, & KOSPI on Pressuring Moon Jae-In to Change His Mind
  5. CloudMinds Inc Early Thoughts – Still Nascent

1. Douyu IPO: Cost Structure Disadvantage Vs. Huya Implies a Discount Not Premium Is Appropriate

11

Douyu plans to list on the 16th of July on Nasdaq. Proceeds of the IPO are expected to be utilised to expand on content genres offered and provide premium esports content, improve existing technologies and big data analytics, invest in marketing activities and for general corporate purposes. At the mid-point of the offer price range, the company will raise approx. USD572.8m to carry out the above-mentioned investment activities.

Douyu mainly competes with Huya in the game streaming landscape in China. Huya listed in the US in May 2018 and the company has managed to make an operating profit and raise its gross profits in the last year. Meanwhile, Douyu continues to struggle to make operating profits, having just achieved gross profit status in the last fiscal year. Even though the company has a higher user base than Huya, Douyu continues to suffer with regards to efficiently managing costs related to revenue sharing fees and content costs.

Huya’s topline and bottomline performance seems much more favourable to us than Douyu’s. According to our estimates, Douyu has an EV of USD3,498m, which iterates to an FY1 EV/sales multiple of 4.4x, which we believe is expensive compared to peers. In comparison, peers Huya and iQiyi are trading at cheaper multiples of 3.4x and 3.1x respectively. 

2. Weekly Oil Views: Barry Didn’t Chase the Bears Away

Screen%20shot%202019 07 14%20at%203.21.08%20pm

It is the Atlantic hurricane season and severe tropical storms in the US Gulf of Mexico, depending on the damage and disruption to oil facilities caused by them, can be expected to splash the market with bouts of bullishness.  

The approach of Tropical Storm Barry (which reached hurricane strength as it made landfall in Louisiana), helped by the report of an unexpectedly large weekly drawdown in US crude inventories, prompted a 4-4.5% spike in crude prices last Wednesday. But the rally stalled as the week drew to a close.

It may have been expectations of no major disruption to oil facilities in the wake of Barry as the picture on the storm became clearer, that put a lid on crude’s rise. But perhaps more significantly, the market remained focused on the oversupply prognosis of all three major forecasters — the EIA, OPEC and IEA — in their latest monthly reports last week.

The oil bears may have temporarily taken shelter from Barry, but with the disruption to crude and refined product facilities in and around the US Gulf expected to be minor (if any) and short-lived, we expect them to remain in control.

3. CloudMinds IPO Initiation: Computer Says No

Gross%20margin

CloudMinds (CMDS US) offers an end-to-end cloud robot system which is capable of operating consumer service robots, which include both in-house and third-party robots. It is backed by Softbank Group (9984 JP)’s Vision Fund, which is a 34.6% shareholder.

CloudMinds is big on vision and buzzword-laden rhetoric. Overall, we believe that CloudMinds is not an IPO for the faint-hearted, and it is not yet ready for the unforgiving glare of the public markets.

4. The Role of Election Polls, Credit Ratings, & KOSPI on Pressuring Moon Jae-In to Change His Mind

Polls

In this report, we provide a detailed analysis of the key factors/events that could cause Moon Jae-In to change his mind to become more friendly with Japan instead of maintaining his hostile position.

MAIN THESIS – Moon Jae-In is not likely to change his current hostile position towards Japan if the election polls, stock market, sovereign credit ratings do not change materially from where they are today. 

If the stock market drops a lot more, the global credit rating agencies such as Moody’s and S&P lower their sovereign credit rating of South Korea, and the major election polls significantly lower the chances of the ruling Democratic Party of Korea winning in the next National Assembly Election to its chief rival – the conservative Liberty Korea Party, then the chief members of the ruling Democratic Party of Korea could eventually pressure President Moon to change his mind so that that he starts to engage in more friendly policies towards Japan, flies over to Japan, shakes hands with Abe, and makes pleas to finally resolve this serious economic and political crisis between the two powers in East Asia. 

5. CloudMinds Inc Early Thoughts – Still Nascent

Margins improved gross margin operating margin chartbuilder

CloudMinds (CMDS UA) is looking to raise US$500m in its upcoming IPO in the US.

The idea of replacing day to day mundane tasks through robots and being able to leverage AI and cloud computing to improve their performance sounds incredible. FY2018 revenue growth has also been spectacular.

But, under the fold, the company is less like a cloud robotics company since it derives majority of revenue from smart devices with cloud computing capabilities. The lack of data disclosure is frustrating, as it has made revenue visibility poor since there is no way of telling which products (smart devices or robots) are selling well. 

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Multi-Strategy: Nexon Sale: MBK Behind Scene Stories and more

By | Daily Briefs, Multi Strategy

In this briefing:

  1. Nexon Sale: MBK Behind Scene Stories
  2. Are Risky Assets Overvalued?
  3. Trade War/Hong Kong/Shipbuilding/Rubbish
  4. The Path to a European Renaissance
  5. Taking Off: Vietnamese Exports Are Rocking and Rolling

1. Nexon Sale: MBK Behind Scene Stories

MBK was one of the three leading horses in the Nexon sale race. It was the only FI in this group. You know this is MBK, the king of deals. It’s hard to believe, but even this MBK didn’t know KJJ’s cancellation until the last minute. One local news outlet “Chosun” put out a report that gives us a rare detailed picture of what had been going at MBK until the last minute regarding this deal. I found what’s contained in this report very informative and interesting for Nexon investors even after the deal got wrapped up in an unexpected way.

In this post, I summarize some of the key happenings at MBK regarding the Nexon deal. I need to make this very clear that this post is mainly based on this Chosun report, but it also includes what I heard and found from other sources, mainly local stock investment online communities.

Here is the link of the Chosun report if you want to read the original.

2. Are Risky Assets Overvalued?

Cape to long term average log cape to average chartbuilder 2

US stocks are significantly overvalued and we should expect lower than average returns going forward, unless there is going to be a substantial increase in earnings growth.

In the credit space, corporate bonds are expensive, and leveraged loans unattractive.

As risky assets become less attractive and expensive, that leaves investors mostly with Government Bonds.

3. Trade War/Hong Kong/Shipbuilding/Rubbish

China News That Matters

  • Trump complains about Chinese shopping
  • Hong Kong crisis – deal “dead”, but not withdrawn
  • When we could be diving for pearls
  • Where there’s muck, there’s brass

In my weekly digest China News That Matters, I will give you selected summaries, sourced from a variety of local Chinese-language and international news outlets, and highlight why I think the news is significant. These posts are meant to neither be bullish nor bearish, but help you separate the signal from the noise.

4. The Path to a European Renaissance

We had a number of discussions with readers in the wake of last week’s publication, Europe: An Ugly Duckling About To Be A Swan. The topics revolved mainly around further justification for buying into Europe, when U.S. equities had performed so well in the last 10 years.

European equities is a value play compared to the U.S., even after adjustments. We calculated what the aggregate forward multiple for Europe if its sector composition is the same as the S&P 500 to make an apples-to-apples comparison, but each sector retained its forward P/E multiple. We found that the adjusted MSCI Europe forward P/E ratio is 14.6, compared to stated multiple of 13.9 for MSCI Europe and 17.1 for the S&P 500.

We hypothesize that the catalyst for European outperformance is a turnaround in the value/growth cycle, and that catalyst might be found in increased regulatory and anti-trust scrutiny of U.S. Big Data companies.

Under a scenario where government agencies pursue FAANG stocks for antitrust violations, we expect these companies would, over time, relinquish their market leadership position. That might be the opening for value stocks to step up into the vacuum and begin a revival of the value/growth cycle.

5. Taking Off: Vietnamese Exports Are Rocking and Rolling

Asia%20exports%201

Whisper it quietly but not all Asian exporters are struggling. In the first six months of 2019 the dollar value of exports from Korea dropped 8.5% YoY. Taiwanese exports were down 3.6% YoY . Meanwhile, Chinese exports, the country at the heart of the trade war, were down just 0.1% YoY.  

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Multi-Strategy: Weekly Oil Views: Barry Didn’t Chase the Bears Away and more

By | Daily Briefs, Multi Strategy

In this briefing:

  1. Weekly Oil Views: Barry Didn’t Chase the Bears Away
  2. CloudMinds IPO Initiation: Computer Says No
  3. The Role of Election Polls, Credit Ratings, & KOSPI on Pressuring Moon Jae-In to Change His Mind
  4. CloudMinds Inc Early Thoughts – Still Nascent
  5. Blockchain Delusion: Overstock

1. Weekly Oil Views: Barry Didn’t Chase the Bears Away

Screen%20shot%202019 07 14%20at%203.21.08%20pm

It is the Atlantic hurricane season and severe tropical storms in the US Gulf of Mexico, depending on the damage and disruption to oil facilities caused by them, can be expected to splash the market with bouts of bullishness.  

The approach of Tropical Storm Barry (which reached hurricane strength as it made landfall in Louisiana), helped by the report of an unexpectedly large weekly drawdown in US crude inventories, prompted a 4-4.5% spike in crude prices last Wednesday. But the rally stalled as the week drew to a close.

It may have been expectations of no major disruption to oil facilities in the wake of Barry as the picture on the storm became clearer, that put a lid on crude’s rise. But perhaps more significantly, the market remained focused on the oversupply prognosis of all three major forecasters — the EIA, OPEC and IEA — in their latest monthly reports last week.

The oil bears may have temporarily taken shelter from Barry, but with the disruption to crude and refined product facilities in and around the US Gulf expected to be minor (if any) and short-lived, we expect them to remain in control.

2. CloudMinds IPO Initiation: Computer Says No

Rev%20visibility

CloudMinds (CMDS US) offers an end-to-end cloud robot system which is capable of operating consumer service robots, which include both in-house and third-party robots. It is backed by Softbank Group (9984 JP)’s Vision Fund, which is a 34.6% shareholder.

CloudMinds is big on vision and buzzword-laden rhetoric. Overall, we believe that CloudMinds is not an IPO for the faint-hearted, and it is not yet ready for the unforgiving glare of the public markets.

3. The Role of Election Polls, Credit Ratings, & KOSPI on Pressuring Moon Jae-In to Change His Mind

Kimdaejung

In this report, we provide a detailed analysis of the key factors/events that could cause Moon Jae-In to change his mind to become more friendly with Japan instead of maintaining his hostile position.

MAIN THESIS – Moon Jae-In is not likely to change his current hostile position towards Japan if the election polls, stock market, sovereign credit ratings do not change materially from where they are today. 

If the stock market drops a lot more, the global credit rating agencies such as Moody’s and S&P lower their sovereign credit rating of South Korea, and the major election polls significantly lower the chances of the ruling Democratic Party of Korea winning in the next National Assembly Election to its chief rival – the conservative Liberty Korea Party, then the chief members of the ruling Democratic Party of Korea could eventually pressure President Moon to change his mind so that that he starts to engage in more friendly policies towards Japan, flies over to Japan, shakes hands with Abe, and makes pleas to finally resolve this serious economic and political crisis between the two powers in East Asia. 

4. CloudMinds Inc Early Thoughts – Still Nascent

Cloud ai solutions and smart devices have been the main revenue drive usdm cloud robot cloud ai solution smart devices others related parties chartbuilder

CloudMinds (CMDS UA) is looking to raise US$500m in its upcoming IPO in the US.

The idea of replacing day to day mundane tasks through robots and being able to leverage AI and cloud computing to improve their performance sounds incredible. FY2018 revenue growth has also been spectacular.

But, under the fold, the company is less like a cloud robotics company since it derives majority of revenue from smart devices with cloud computing capabilities. The lack of data disclosure is frustrating, as it has made revenue visibility poor since there is no way of telling which products (smart devices or robots) are selling well. 

5. Blockchain Delusion: Overstock

Screen%20shot%202019 07 11%20at%202.42.09%20pm

Blockchain delusion may have peaked, but it hasn’t gone away. Online US retailer Overstock, led by outspoken and controversial founder Patrick Byrne, continues to promote, actually evangelize, his company’s blockchain initiatives. Under his “Governement as a Service” moniker, Byrne vows to transform key pillars of society, from voting to land title management, from capital markets to currencies. Even more spectacularly, Byrne claims to have found “cold fusion on the blockchain side”. Is he correct? We think not and here’s why. 

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Multi-Strategy: The Role of Election Polls, Credit Ratings, & KOSPI on Pressuring Moon Jae-In to Change His Mind and more

By | Daily Briefs, Multi Strategy

In this briefing:

  1. The Role of Election Polls, Credit Ratings, & KOSPI on Pressuring Moon Jae-In to Change His Mind
  2. CloudMinds Inc Early Thoughts – Still Nascent
  3. Blockchain Delusion: Overstock
  4. Nexon Sale: MBK Behind Scene Stories
  5. Are Risky Assets Overvalued?

1. The Role of Election Polls, Credit Ratings, & KOSPI on Pressuring Moon Jae-In to Change His Mind

Kimdaejung

In this report, we provide a detailed analysis of the key factors/events that could cause Moon Jae-In to change his mind to become more friendly with Japan instead of maintaining his hostile position.

MAIN THESIS – Moon Jae-In is not likely to change his current hostile position towards Japan if the election polls, stock market, sovereign credit ratings do not change materially from where they are today. 

If the stock market drops a lot more, the global credit rating agencies such as Moody’s and S&P lower their sovereign credit rating of South Korea, and the major election polls significantly lower the chances of the ruling Democratic Party of Korea winning in the next National Assembly Election to its chief rival – the conservative Liberty Korea Party, then the chief members of the ruling Democratic Party of Korea could eventually pressure President Moon to change his mind so that that he starts to engage in more friendly policies towards Japan, flies over to Japan, shakes hands with Abe, and makes pleas to finally resolve this serious economic and political crisis between the two powers in East Asia. 

2. CloudMinds Inc Early Thoughts – Still Nascent

Percentage of fy2018 revenue  chartbuilder

CloudMinds (CMDS UA) is looking to raise US$500m in its upcoming IPO in the US.

The idea of replacing day to day mundane tasks through robots and being able to leverage AI and cloud computing to improve their performance sounds incredible. FY2018 revenue growth has also been spectacular.

But, under the fold, the company is less like a cloud robotics company since it derives majority of revenue from smart devices with cloud computing capabilities. The lack of data disclosure is frustrating, as it has made revenue visibility poor since there is no way of telling which products (smart devices or robots) are selling well. 

3. Blockchain Delusion: Overstock

Screen%20shot%202019 07 11%20at%202.06.22%20pm

Blockchain delusion may have peaked, but it hasn’t gone away. Online US retailer Overstock, led by outspoken and controversial founder Patrick Byrne, continues to promote, actually evangelize, his company’s blockchain initiatives. Under his “Governement as a Service” moniker, Byrne vows to transform key pillars of society, from voting to land title management, from capital markets to currencies. Even more spectacularly, Byrne claims to have found “cold fusion on the blockchain side”. Is he correct? We think not and here’s why. 

4. Nexon Sale: MBK Behind Scene Stories

MBK was one of the three leading horses in the Nexon sale race. It was the only FI in this group. You know this is MBK, the king of deals. It’s hard to believe, but even this MBK didn’t know KJJ’s cancellation until the last minute. One local news outlet “Chosun” put out a report that gives us a rare detailed picture of what had been going at MBK until the last minute regarding this deal. I found what’s contained in this report very informative and interesting for Nexon investors even after the deal got wrapped up in an unexpected way.

In this post, I summarize some of the key happenings at MBK regarding the Nexon deal. I need to make this very clear that this post is mainly based on this Chosun report, but it also includes what I heard and found from other sources, mainly local stock investment online communities.

Here is the link of the Chosun report if you want to read the original.

5. Are Risky Assets Overvalued?

Cape to long term average log cape to average chartbuilder 2

US stocks are significantly overvalued and we should expect lower than average returns going forward, unless there is going to be a substantial increase in earnings growth.

In the credit space, corporate bonds are expensive, and leveraged loans unattractive.

As risky assets become less attractive and expensive, that leaves investors mostly with Government Bonds.

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief Multi-Strategy: What Would Happen If The Fed Cuts Rates? and more

By | Daily Briefs, Multi Strategy

In this briefing:

  1. What Would Happen If The Fed Cuts Rates?
  2. Budweiser Brewing Company APAC IPO: A Solid PHIP Update
  3. 🇰🇷 🇯🇵 That Was The Week That Was North Asia – 10-16th June 2019 @Smartkarma
  4. 🇯🇵 Japan • Relative Price Scores – Overbought & Oversold Companies – June 2019

1. What Would Happen If The Fed Cuts Rates?

As we look ahead to the FOMC meeting next week, the market has priced in three quarter-point rate cuts for 2019, with the first cut occurring at the July meeting.

A rate cut is not unexpected, as the bond market has pushed the Treasury yield curve down so far that only the 30-year Treasury bond is trading above the current Fed Funds target. It is likely too early for the Fed to cut rates at its June meeting next week, but if the market is discounting a July cut, the Fed is likely to signal it is either in agreement with that expectation or correct the market.

Rather than debate whether the Fed should cut rates, we consider the scenario of what might happen if it were to proceed with a July rate cut. What are the consequences for economic growth and the stock market?

We believe that while the Fed could decide to cut rates at its July FOMC meeting, the future path of interest rates and stock prices depends on the reasoning behind the rate cut. If the cut is in response to the eruption of a full-blown trade and economic cold war with China, it is likely to be the start of a protracted rate cut cycle, with bearish implications for equity prices. On the other hand, if the rate cut is an “insurance” cut designed to heed off further economic weakness in the face of a stalemated trade dispute, we expect the cut to be reversed relatively quickly because the global growth backdrop remains constructive. Equity prices would rise under such a scenario as the bullish implications of higher growth would overwhelm the bearish implications of higher interest rates.

2. Budweiser Brewing Company APAC IPO: A Solid PHIP Update

Volume

Budweiser Hong Kong Holding (0338867D HK)/Budweiser APAC is Anheuser Busch Inbev Sa/Nv (ABI BB)’s Asian business and is the largest beer company by retail sales value based in the Asia Pacific, according to GlobalData. On Thursday, Budweiser APAC received HKEX approval for a Hong Kong IPO to raise $5-10 billion, according to press reports.

In our IPO initiation note, we concluded that Budweiser APAC fundamentals are strong. The PHIP update which outlines 1Q19 financials reinforces our view).

3. 🇰🇷 🇯🇵 That Was The Week That Was North Asia – 10-16th June 2019 @Smartkarma

2019 06 12 19 11 00

TW3 NORTH ASIA 10-16TH JUNE

Smartkarma’s North Asian Insight providers were overwhelmingly bullish this week. In the Event-Driven space, Sanghyun Park provided an update on the Nexon Sale, and Michael Causton gave an excellent overview of the M&A permutations for Japan’s listed Drugstore companies. Douglas Kim reviews SKC’s purchase of KCFT and suggests that the SK Group appears intent on making more big M&A deals where it wants to have a leading presence – in this case in vertically integrating the lithium-ion batteries/components/materials.  Also in Korea, KCGI’s move on Hanjin Kal is running into funding problems, while a 3% stake has recently by purchased by Goldman Sachs, with the rumoured end-buyer being Delta Airlines.  

Only one IPO was commented on – Oshadhi Kumarasiri casts a dubious eye over the upcoming Shin-nihon-seiyaku Co Ltd (4931 JP) deal and suggests that management maybe selling out ahead of the peaking of the company main, and so-far only brand, Perfect One.

Bullish Equity Bottom-Up comments were published on Nissan (7201 JP), Renesas Electronics (6723 JP), Rakuten (4755 JP), Hitachi (6501 JP), Modec(6269 JP), Nintendo (7974 JP), and Life (8194 JP). Only ZOZO (3092 JP) saw (another) bearish call.

Bullish Thematic & Strategy Insights were released on Japanese Telcos from Kirk Boodry – highlighting another regulatory-driven boost for Rakuten, while Sanghyun Park delved into the murky world of high-speed trading (HST) in Korea where Citadel and Merrill Lynch have made some controversial moves. In Japan, HST has recently been regulated with all operators required to establish an onshore entity or appoint a local agent and meet stringent reporting requirements governing their trading activities. Perhaps Korea should follow this example? Lastly, this author updated his Relative Price Score data, although these Insights are not summarised below.  


EVENT DRIVEN: BULLISH

Nexon Sale: Current Status Checkup

Drug-Fuelled Marriages and Macho Shachos in Japan

Korea M&A Spotlight: SKC Acquires KCFT for $1 Billion

EVENT DRIVEN: BEARISH

Hanjin Kal Special Situation: KCGI’s Takeover Is Tougher than Previously Appeared

IPOs & PLACEMENTS: BEARISH

Shinnihonseiyaku IPO: Perfect One, Not So Perfect Afterall

EQUITY BOTTOM UP: BULLISH

Nissan: Chances of the Alliance Surviving Have Dimmed Greatly

Renesas: Factory Automation and Aircon Inventory Adjustments to Take Time

Rakuten Pay Winning the Japanese Cashless War?

Hitachi Ltd. (6501 JP): Share Price Up on Restructuring News

MODEC: On Track to Win Roughly Half of Its Bids

Switch Production to Move From China; Nintendo Plunges After Dull E3 Presentation

Life Corp Ties with Amazon Japan

EQUITY BOTTOM UP: BEARISH

Zozo: The Underlying Operating Metrics Worry Us

THEMATIC & STRATEGY: BULLISH

Japan Telcos – Lower Cap for Early Cancellation: Positive for Rakuten

Algorithm Trading on KOSDAQ: Citadel Fund Case Checkup

THEMATIC & STRATEGY: BEARISH

🇯🇵 Japan • June Relative Price Scores: Market, Sectors & Peer Groups – More of The Same

🇯🇵 Japan • Relative Price Scores – Overbought & Oversold Companies – June 2019

4. 🇯🇵 Japan • Relative Price Scores – Overbought & Oversold Companies – June 2019

2019 06 15 14 21 56

• RELATIVE PRICE SCORE • 

Source: Japan Analytics

INTRODUCTION – The Relative Price Score (RPS) is a measure of stock price performance relative to TOPIX calculated by comparing the current deviation with the mean absolute deviation of monthly and daily relative share prices. As all companies are thus on a comparable scale, ‘Overbought’ and ‘Oversold’ outliers and changes in scoring can reveal short-term and longer-term trading opportunities. Company outlier thresholds are set at +4 & -2 and equate to the top and bottom first-to-second percentiles of historical observations from which mean reversion takes a matter of months. RPS outliers with a Score of greater than 10.0 are rare outside of the 2000 tech ‘bubble’. Goldwin (8111 JP) has the distinction of being one of only two large-cap RPS ‘ten-baggers’ since that time.

This insight updates our list of Overbought and Oversold companies, reviews the best and worst performing companies in terms of RPS over the last three months and adds some specific comments on stocks on each category.

Source: Japan Analytics

STATISTICS – Currently, of the 3,832 listed companies for which daily RPS data is available, 94 companies are ‘Overbought’, and 131 are ‘Oversold’ – 2.5% and 3.4%, respectively of the total. For the 758 companies with a market capitalisation of over ¥100b, there are 50 ‘Overbought’ and 18 ‘Oversold’ companies, 6.6% and 5.0%, respectively. As noted the companion Insight, 🇯🇵 Japan • June Relative Price Scores: Market, Sectors & Peer Groups – More of The Same, these numbers and percentages are unusual and were last seen in the Japanese market in 2000. 


• RELATIVE PRICE SCORE TOPS •

Source: Japan Analytics

RPS ‘TOPS’ – In the last two years, 444 companies have achieved an RPS of ‘4’ or more and the average Overbought ‘persistence’ is 43 days. 1.4% of the total of 1.29 million traded stock days were by companies with an RPS of over 4. For companies with a market capitalisation higher than ¥100b, the numbers are 96 companies and 75 days – demonstrating the superior persistence of large capitalisation companies in this regard. Some examples of RPS mean reversion in the last three months have been Descente (8114 JP)Alfresa (2784 JP), FamilyMart Uny (8028 JP), Kikkoman (2801 JP), Kobayashi Pharmaceutical (4967 JP), and Eiken Chemical (4549 JP).  

Source: Japan Analytics

RPS ‘BOTTOMS’ – 372 companies have seen their RPS fall to ‘-2’ or below in the last two years, and the average Oversold ‘persistence’ is 61 days. 1.5% of the total of 1.29 million traded stock days were by companies with an RPS of less than -2.  For larger capitalisation companies, the numbers are 85 companies and 89 days. A recent example of positive RPS mean reversion is K&O Energy (1663 JP).

Source: Japan Analytics

In the DETAIL section below, we list the current very overbought (RPS>5), too late to buy (RPS >4<5) and oversold (RPS <-2) stocks as well as the most substantial three-month positive and negative changes in RPS.

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.