Daily BriefsJapan

Japan: Sharp Corp, BASE Inc, Nikkei 225, Mizuho Financial Group and more

In today’s briefing:

  • NTT Docomo Delisting; Nikkei 225 Replacement Is SHARP (6753) – With a Surprise
  • Nikkei 225 Index Rebalance: Sharp (6753) Replaces NTT DoCoMo
  • Base Inc Bubble Is Still Far From Bursting
  • Asia Reduce and Fresh Buy Levels for Next Push
  • Mizuho Financial Group (8411 JP):  Anything But Consistent

NTT Docomo Delisting; Nikkei 225 Replacement Is SHARP (6753) – With a Surprise

By Travis Lundy

With the results of the NTT (Nippon Telegraph & Telephone) (9432 JP) Tender Offer for NTT Docomo Inc (9437 JP) announced yesterday, getting them to 91.46%, this triggers a fast-track change in the Nikkei 225 treatment based on a rule change for constituent selection announced on 15 June. 

This was discussed briefly in Surprising NTT Docomo Tender Result Accelerates Squeezeout, Great Re-Allocation, Nikkei 225 Change.

The relevant part of the rule change is shown below. 

The first time it was used was with the replacement for Sony Financial Holdings (8729 JP) where the clearance of 90% made delisting a foregone conclusion because it only required the parent to ask. The same is the case here. 

Today, the Nikkei Index Business Office announced the replacement for NTT Docomo in the Nikkei 225 Index. It is Sharp Corp (6753 JP) with a presumed par value of 50 yen. The change will be made at the close of trading on 1 December 2020 (8 trading days left). 

This is surprising. Very surprising. And it matters a lot.

Due to the reverse 1:10 share split of end-2017, this should have been a presumed par value of 500 yen. I half wonder whether they made a typo and will correct it. The other possibility is that because it happened while the stock was in the Purgatorio of the Second Section, that data simply didn’t register so they ignored it. Which would be a Very Bureaucratic Thing To Do.

Details on the index rebalance trade below.

Nikkei 225 Index Rebalance: Sharp (6753) Replaces NTT DoCoMo

By Brian Freitas

After market close today, Nikkei announced that Sharp Corp (6753 JP) would replace NTT Docomo Inc (9437 JP) in the Nikkei 225 (NKY INDEX) with effect from the open of trading on 2 December.

Sharp Corp (6753 JP) was deleted from the Nikkei 225 (NKY INDEX) in August 2016 and now makes its way back in to the index after 4 years.

We estimate ETFs benchmarked to the Nikkei 225 (NKY INDEX) will need to buy 23.284m shares of Sharp Corp (6753 JP) at the close of trading on 1 December. That is around 10 days of ADV and 18% of real world float to buy in the next 8 trading sessions prior to the close on implementation day.

The Nikkei 225 (NKY INDEX) ETFs will need to sell 2.328m shares of NTT Docomo Inc (9437 JP) at the close of trading on 1 December. MSCI has already announced the deletion with effect from the close of trading on 19 November. We expect FTSE will announce the deletion later today and be effective after the close of trading on 20 November. The selling will have minimal impact on the stock with arbitrageurs buying to tender to NTT (Nippon Telegraph & Telephone) (9432 JP).

Base Inc Bubble Is Still Far From Bursting

By Oshadhi Kumarasiri

Following two extremely successful quarters, BASE Inc (4477 JP) shares rallied more than 1,000% from its IPO price to reach a high of ¥16,510 per share before declining 40% to ¥9,920 after the 3Q20 results release on 16th November 2020.

In its short history, Base Inc is known for showering investors with an overwhelming amount of information, mostly immaterial and unnecessary disclosure which could distract investors from reality. The unwarranted share price rally may have started this trend, as the company did its best to stay relevant and within sight of investors all times.

Asia Reduce and Fresh Buy Levels for Next Push

By Thomas Schroeder

Market is ahead of itself after the vaccine push and faces the reality of slower growth/higher cases into the winter and a stimulus void. Impulsive rallies are bullish but looking frothy tactically where one must protect against a draw down back within US pattern ranges if we crack SPX 3,500 support. Bullish sentiment near extremes with risk of a harder than expected pullback.

Asia and Europe are showing short term overbought signals with most RSI’s knocking on 75+ readings.

Rally targets are being met where we like taking some money off the table and work through fresh buy levels and forward rally targets.

Mizuho Financial Group (8411 JP):  Anything But Consistent

By J. Brian Waterhouse

A 15% improvement in net interest and fee income (NIFI), tremendous loan growth (+8.6% YoY), widening loan margins and a ten-fold improvement in core earnings were not enough to prevent interim FY3/2021 results for Mizuho Financial Group (8411 JP)  (MHFG) from falling 25% YoY.  A 7-fold surge in credit costs to ¥81.22 billion and impairment losses on cross-shareholdings of ¥55.2 billion put paid to that.  Even so, consolidated net profits of ¥215.52 billion represented two-thirds of full-year guidance, which has now been raised from ¥320.0 billion to ¥350.0 billion (down 22% YoY).

The shares have risen 17% in the last six months but are still 18% below where they were this time last year.  Curiously, this means that, on a 12-month basis, MHFG has managed to outperform not only arch-rivals Mitsubishi UFJ Financial (MUFG) (8306 JP)  and Sumitomo Mitsui Financial Group (8316 JP) but the other four major banks as well.  Even so, MHFG’s lack of consistency, either in profit generation or management execution, makes this a difficult stock to recommend on fundamentals.  MHFG has time and again promised much but then either failed to deliver or has surprised the market with sudden sweeping changes in strategy, requiring long time-horizons for implementation and creating value.  Investor patience has been sorely tested.

Caveat Emptor! (May the Buyer Beware!) remains our advice to would-be investors in this enormous but highly volatile banking group.

Before it’s here, it’s on Smartkarma