Looking Inside the Diaper.
On 30 May 2019, I wrote about Sanyo Chemical (4471 JP) and Nippon Shokubai (4114 JP) as a Guess-The-Ratio trade. I liked both companies, but one wanted to buy Sanyo Chem cheap (1/n)
smartkarma.com/insights/sanyo…
On 30 May 2019, I wrote about Sanyo Chemical (4471 JP) and Nippon Shokubai (4114 JP) as a Guess-The-Ratio trade. I liked both companies, but one wanted to buy Sanyo Chem cheap (1/n)
smartkarma.com/insights/sanyo…
(2/n) I recommended trading the range, buying the 4471/4114 ratio at 0.75 and possibly shorting it at 0.95. 
(3/n): The summer passed and Sanyo Chem underperformed despite being cheaper, but as also noted in the first insight, Silchester was building a position in Shokubai. When it got to 0.75 in July 2019, that was time to buy.
Nippon Shokubai downgraded its forecast at end-Jul2019
Nippon Shokubai downgraded its forecast at end-Jul2019
(4/n) and the ratio popped. Then Shokubai downgraded again, and Sanyo Chem downgraded its forecast a little. Absorbent polymer was weak for both.
In November, a ratio was decided ~0.816x. In January 2020, Shokubai downgraded again.
Ratio hovered from 0.75-0.80, fell in Mar20.
In November, a ratio was decided ~0.816x. In January 2020, Shokubai downgraded again.
Ratio hovered from 0.75-0.80, fell in Mar20.
(5/n) In April, the merger was revisited. The Sanyo Chem CEO had said they couldn't justify the ratio to shareholders. It was wrong anyway, but double downgrades by Shokubai were not tolerable for SC shareholders.
(I reiterated in April and June)
The two cos said they would
(I reiterated in April and June)
The two cos said they would
(6/n) revisit, decide by yr-end. SC did not gain much immediately, but gained to 0.88x or so by late Oct 2020, the two cancelled their deal. They might come back to it, but not near-term. That was again a signal to buy the ratio. The SC CEO couldn't get the right ratio negotiated
(7/n) and wouldn't merge at the wrong ratio and THAT is a company you want to be long. I again recommended the ratio (long 4471 vs 4114). It drifted lower to 0.85x area by end-Nov 2020. Still a buy. Reiterated in October.
smartkarma.com/insights/sanyo…
smartkarma.com/insights/sanyo…
(8/n) The ratio was 1.01x as of 25 Dec 2020.
In early November Shokubai did not revise its awful FY forecast (OP -92%), and Sanyo Chem did not revise its halfway decent forecast (OP -7.6%).
And Sanyo Chem has batteries.
In early November Shokubai did not revise its awful FY forecast (OP -92%), and Sanyo Chem did not revise its halfway decent forecast (OP -7.6%).
And Sanyo Chem has batteries.
(9/n) Really cool low-cost polymer/resin batteries where production cost is half or less of lithium ion batteries, and safer. And SC owns 40% of the devco (prof Horie from Keio is the tech guru here at the co called "APB") and the battery tech is licensed to SC and Nissan.
(10/n) Full scale production in 2021 and it is not in the medium-term management plan.
It is not clear 1.01x is the wrong ratio.
It is not clear 1.01x is the wrong ratio.
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