Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

HK Type 4 license through Ballingal Investment Advisors Ltd. ("BIA" or "BIAL")

BACKGROUND
I have 20+yrs experience in Asia doing alternative strategies (i.e. non-delta1 non long-only) in fixed income, equity derivatives, and activist/catalyst/event-driven and long-short equity strategies with most of that time spent managing money. 

4 years in fixed income macro, 8 years running internal hedge fund and 4yrs investment banking at Citi in Japan, 3 years running an Asia multi-strat portfolio at a hedge fund, 4+yrs as an independent special situations analyst.

Pan-Asia Catalysts/Events

Ricoh (Reductively) - Reduced Bullishness So Take Off the Trade

Ricoh Buyback Redux - It's On, It's Big. Crossholders Vs Activist Vs Public. Who Sells?

Quiddity Advisors

Event-Driven

<p>On the 27th of March, <a href="https://www.smartkarma.com/entities/ricoh-co-ltd" target="_blank" data-smartkarma-citation="entities:15359:1" rel="noopener">Ricoh Co Ltd (7752 JP)</a> held an <a href="https://www.ricoh.com/IR/events/investors_meeting" target="_blank" rel="noopener">Investors Meeting</a>. There was discussion of how the company had gone through the pain of realizing how they were in real trouble, and then made significant efforts to change that. U</p><p>In the last two Mid-Term Plans (MTPs), called "Resurgent" and "Ignite", the company led by CEO "Jake" Yamashita undertook structural reform to create cost savings of ¥100bn (mostly fixing the sales structure in the US, cutting out HQ costs and using RPA ("Robotic Process Automation") everywhere, and streamlining in-house production). They also started cutting businesses which weren't delivering (or had been delivering losses). They announced they would stop supporting fraud-hit Ricoh India in late 2017 (a case which finally got resolved in early 2019), and then took impairments on Ikon and Mindshift in 2018, deciding to sell their <em>long</em>-held position (tied to Ricoh's founder) in <a href="https://www.smartkarma.com/entities/coca-cola-bottlers-japan" target="_blank" data-smartkarma-citation="entities:20051:1" rel="noopener">Coca Cola Bottlers Japan (2579 JP)</a> that year to help them smooth out the large losses. In May 2018 they sold Ricoh Logistics. That seemed to get them "over the hump" as Yamashita-san said then, and the growth strategy outlined in mid-2018 concentrated on industrial commercial printing and more features in MFPs to create a better "digital services business."</p><p><strong>In March this year, they announced they were going to sell 20% of <a href="https://www.smartkarma.com/entities/ricoh-leasing-co-ltd" target="_blank" data-smartkarma-citation="entities:9144:1" rel="noopener">Ricoh Leasing (8566 JP)</a></strong>to <a href="https://www.smartkarma.com/entities/mizuho-leasing-co-ltd" target="_blank" data-smartkarma-citation="entities:12780:1" rel="noopener">Mizuho Leasing Co (8425 JP)</a>, which would allow them to de-consolidate Ricoh Leasing, which completely changes the optics of Ricoh's consolidated debt. </p><p><strong>The company also gave a preview of the next Mid-Term Plan for FY20-22 called "Lift Off" which should be announced next month </strong>(and which Yamashita-san had previously previewed 1 November 2019). That will involve a lot more digital services. The company may be under more pressure from its long-time large shareholder activist Effissimo Capital Management. Effissimo first went substantial by reporting an 8.61% position, meant for "pure investment purposes" in early September 2015. They lifted that position to above 10% then eventually to the high teens, and on 13 August 2019 noted that they had lifted their position slightly, to 18.99%, but importantly were changing the purpose of their investment to "making important recommendations to management." Effissimo has ~US$1.5bn invested in the company at ¥1120 on average against Friday's close of ¥734, much of the position on margin with lenders.</p><p>The stock hit a 4+yr high in February this year, finally catching up to TOPIX when compared to the relative lows in mid 2016 (the chart below is equalized in terms of percentage changes in price). Then in March and early April fell to a 7-year low. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/466/original/Screenshot%202020-04-18%20at%2010.24.37%20PM.png?1587219926" class="editor-image img-responsive" data-smartkarma-image-id="128466"></figure><div style="text-align: left;" class="content-caption">source: tradingview.com, Quiddity</div><p>More importantly, it fell sharply vs TOPIX and whereas TOPIX has bounced, Ricoh has hardly moved. </p><p>Investor Day had been scheduled for a while, so it wasn't any disappointment with that, and what should have been <em>Confirmation of Good News</em> seems to have been largely ignored. That is possibly an error by market observers.</p><h2>The Confirmation of Good News</h2><p>In the Investor Day 2019 presentation on 19 April 2019, there was a slide noting the goal of the future capital structure which included returning capital to shareholders to the tune of ¥100bn. It had been a goal of the MTP which runs until this year, but that was presented with enough vagueness to still seem aspirational. In this year's slide deck, the company presented the same slide from the 2019 slide deck, but with an additional slide presenting cashflow sources and uses. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/128/467/original/Screenshot%202020-04-18%20at%2010.44.27%20PM.png?1587221108" class="editor-image img-responsive" data-smartkarma-image-id="128467"></figure><div style="text-align: left;" class="content-caption">source: Ricoh Investor Day Presentation 27 March 2020</div><p>In that slide (shown below) it shows a section for shareholder returns, including the return of ¥100bn generated during the Mid-Term Plan to FY19. I am the last person to draw lines on a chart in a presentation and assume that they should be taken at presented relative sizes, but the Q&amp;A provided a little clarity on how one should think about that ¥100bn created to FY19.</p><p>The Mizuho Leasing purchase of the Ricoh Leasing stake is scheduled to close in the next week or two, and fiscal year earnings are scheduled for 8 May 2020.</p><div class="content-highlight">
<p>Given where the stock is now, ¥100bn of returns to shareholders from the last Mid-Term Plan looks juicy. It is 18.8% of market cap. And if one looks at how that might be implemented, the impact looks even more interesting. </p>
<p>It sometimes helps to think like a card counter. </p>
<p>More below.</p>
</div>

On the 27th of March, Ricoh Co Ltd (7752 JP) held an Investors Meeting. There was discussion of how the company had gone through the pain of realizing how they were in real trouble, and then made significant efforts to change that. UIn the last two Mid-Term Plans (MTPs), called "Resurgent" and "Ignite", the company led by CEO "Jake" Yamashita undertook structural reform to create cost savings of ¥100bn (mostly fixing the sales structure in the US, cutting out HQ costs and using RPA ("Robotic Process Automation") everywhere, and streamlining in-house production). They also started cutting businesses which weren't delivering (or had been delivering losses). They announced they would stop supporting fraud-hit Ricoh India in late 2017 (a case which finally got resolved in early 2019), and then took impairments on Ikon and Mindshift in 2018, deciding to sell their long-held position (tied to Ricoh's founder) in Coca Cola Bottlers Japan (2579 JP) that year to help them smooth out the large losses. In May 2018 they sold Ricoh Logistics. That seemed to get them "over the hump" as Yamashita-san said then, and the growth strategy outlined in mid-2018 concentrated on industrial commercial printing and more features in MFPs to create a better "digital services business."In March this year, they announced they were going to sell 20% of Ricoh Leasing (8566 JP)to Mizuho Leasing Co (8425 JP), which would allow them to de-consolidate Ricoh Leasing, which completely changes the optics of Ricoh's consolidated debt. The company also gave a preview of the next Mid-Term Plan for FY20-22 called "Lift Off" which should be announced next month (and which Yamashita-san had previously previewed 1 November 2019). That will involve a lot more digital services. The company may be under more pressure from its long-time large shareholder activist Effissimo Capital Management. Effissimo first went substantial by reporting an 8.61% position, meant for "pure investment purposes" in early September 2015. They lifted that position to above 10% then eventually to the high teens, and on 13 August 2019 noted that they had lifted their position slightly, to 18.99%, but importantly were changing the purpose of their investment to "making important recommendations to management." Effissimo has ~US$1.5bn invested in the company at ¥1120 on average against Friday's close of ¥734, much of the position on margin with lenders.The stock hit a 4+yr high in February this year, finally catching up to TOPIX when compared to the relative lows in mid 2016 (the chart below is equalized in terms of percentage changes in price). Then in March and early April fell to a 7-year low. source: tradingview.com, QuiddityMore importantly, it fell sharply vs TOPIX and whereas TOPIX has bounced, Ricoh has hardly moved. Investor Day had been scheduled for a while, so it wasn't any disappointment with that, and what should have been Confirmation of Good News seems to have been largely ignored. That is possibly an error by market observers.The Confirmation of Good NewsIn the Investor Day 2019 presentation on 19 April 2019, there was a slide noting the goal of the future capital structure which included returning capital to shareholders to the tune of ¥100bn. It had been a goal of the MTP which runs until this year, but that was presented with enough vagueness to still seem aspirational. In this year's slide deck, the company presented the same slide from the 2019 slide deck, but with an additional slide presenting cashflow sources and uses. source: Ricoh Investor Day Presentation 27 March 2020In that slide (shown below) it shows a section for shareholder returns, including the return of ¥100bn generated during the Mid-Term Plan to FY19. I am the last person to draw lines on a chart in a presentation and assume that they should be taken at presented relative sizes, but the Q&amp;A provided a little clarity on how one should think about that ¥100bn created to FY19.The Mizuho Leasing purchase of the Ricoh Leasing stake is scheduled to close in the next week or two, and fiscal year earnings are scheduled for 8 May 2020.
Given where the stock is now, ¥100bn of returns to shareholders from the last Mid-Term Plan looks juicy. It is 18.8% of market cap. And if one looks at how that might be implemented, the impact looks even more interesting. 
It sometimes helps to think like a card counter. 
More below.


Ricoh's BIG Buyback Potential - The Timing Is Right

Ricoh Company Ltd

Ricoh's BIG Buyback Potential - The Timing Is Right