Japan: Mercari Inc, Renesas Electronics, Nissui Pharmaceutical, Fast Retailing, TBM, TRIPLE-1, GVE, Campfire, Softbank Group and more

• Mercari Inc (4385 JP) was deleted from the MSCI Japan at the close today. Then the company announced that it would move to the Prime Market on 7 June.
• Transfer to Prime Market will require passive TPX INDEX trackers to buy stock end July and FTSE All-World trackers to buy in September – around 19% of free float together.
• Short interest is over 13% of free float. Some of the shorts would have covered against the passive MSCI selling today but the remaining shorts could look to cover.

• 4.5 months ago I wrote Mercari (4385) Applying for TSE Prime Means TOPIX Inclusion in 4-5 Months and today it was announced Mercari would move from TSE Growth to Prime.
• The move happens on 7 June, which means that the actual TOPIX inclusion will be at the close of 28 July. 
• This will change things near-term, and going forward. As always, we dig deeper below.

• The Nikkei 225 (NKY INDEX) market consultation released last week could lead to some tweaks to the index methodology and the stock selection process. Nothing really material enough though.
• Potential index inclusions in September are Renesas Electronics, Oriental Land and Pan Pacific International Holdings, while Toyobo Co Ltd, Nippon Light Metal and Oki Electric Industry are potential index deletions.
• Passive Nikkei 225 trackers will need to buy between 4-9% of the real float on the high/ medium probability names, while they need to buy between 2.5-14 days of ADV.

• Nissui Pharmaceutical (4550 JP) has been cheap for years. Years and years and years. 
• It has traded at negative Enterprise Value for almost all of the past year. 
• Now Shimadzu Corp (7701 JP) is taking it over and heavily indebted parent Nippon Suisan Kaisha (1332 JP) is letting it go.

• Fast Retailing (9983 JP)’s share price rose 10% towards the top end of the trend channel since reporting 15.8% YoY same-store sales growth in April 2022.
• However, the growth rate was influenced by weak comps and in April 2022 domestic revenue was 9% below the pre-pandemic level.
• Meanwhile, Uniqlo’s growth drivers are faltering with China’s revenue near pandemic lows and North America, Europe and Asia affected by rising inflation.

• TBM was established in 2011 and has developed “LIMEX” a composite material made from limestone which can be used as a substitute for paper and plastic. 
• The material benefits significantly from rising environmental awareness as it helps reduce the consumption of pulp, plastics and water as well as reducing transport costs. 
• With a wide variety of commercial partnerships and use cases LIMEX appears to offer significant expansion potential for TBM.

• TRIPLE-1 was established in 2016 and got its start designing highly power efficient ASICs used for cryptocurrency mining, partnering with TSMC to use its leading-edge nodes. 
• Since then the company has moved on to develop ASICs specialised in AI applications as well as for 5G base stations. 
• In all cases the company emphasises power efficiency and with significant gearing into local 5G networks the domestic focus could be a positive rather than a negative.

• GVE is a Fintech startup operating a CBDC or Central Bank Digital Currency platform in Japan that is compliant with IMF and BIS standards. 
• The company has a strong technological pedigree and numerous institutional links which could put it in pole position to cooperate on a CBDC for Japan. 
• Meanwhile, its business model appears somewhat centralised which could offer strong opportunities for monetisation but perhaps slow adoption.

• CAMPFIRE is Japan’s largest crowdfunding platform and also holds the number two spot in the country with a JV with PARCO. 
• The company has a strategy of adopting individual crowdfunding platforms according to specific use cases and this tailoring could prove to be a point of differentiation. 
• Crowdfunding could prove useful in unlocking the artisanal technological capabilities dormant within Japan and CAMPFIRE could be an interesting play on that though consistent red ink is a concern.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

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