Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

That <a href="https://www.smartkarma.com/entities/nitori-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:20386:1" rel="noopener">Nitori Holdings (9843 JP)</a> has had an interest in <a href="https://www.smartkarma.com/entities/shimachu-co-ltd" target="_blank" data-smartkarma-citation="entities:5235:1" rel="noopener">Shimachu Co Ltd (8184 JP)</a> hasn't been secret, per se, since the Nikkei article on the 20th. That it has had a deep rather than passing interest has been seen in the tone and depth of the media articles which have followed this expression of interest. In <a href="https://www.smartkarma.com/insights/nitori-to-make-a-rival-bid-for-shimachu-more-fun-to-go" target="_blank" data-smartkarma-citation="insights:44353" rel="noopener">Nitori To Make a Rival Bid for Shimachu? More Fun To Go</a> I suggested their presence made for more fun and today we got more fun.   Today Nitori showed that it has a strong interest as it bid well through the mid-point of the DCF valuation range from its financial advisor, and just a few percent shy of its top end. The bid at ¥5500/share is now announced, and as long as the conditions remain un-breached, Nitori intends to launch a Tender Offer when the defeating conditions are met, without regard to whether Shimachu recommends the deal or not. Functionally, this means an "OK" from the JFTC and lack of serious intervention by Shimachu. The Offer is expected to launch, assuming conditions permit, by "mid November" (which I would take to mean latter half.This was a buy at ¥3500-3600 in late Sep when it was "just" a potential partial offer. It became a buy when it was at terms at ¥4200 and was too cheap. Now Nitori has come in and bid ¥5500/share it starts looking like we are closer to a fuller price. Not completely full mind you, but fuller. Tactics and response start to come into play. Will DCM respond? Will Shimachu's Independent Committee take the Nitori bid seriously? Will Shimachu reject?There are a bunch of moving parts here and while I tried to offer a preview in <a href="https://www.smartkarma.com/insights/gaming-out-a-nitori-bid-for-shimachu" target="_blank" data-smartkarma-citation="insights:44636" rel="noopener">Gaming Out a Nitori Bid for Shimachu</a> this bid actually probably falls between the cracks so I take yet another look. More below the fold. <hr><table class="table table-striped"><tbody>
<tr><td colspan="2" style="width: 133.636px;"><h2>Insights so far in the series</h2></td></tr>
<tr>
<td style="width: 133.636px;">Date</td>
<td style="width: 569.091px;">Title</td>
</tr>
<tr>
<td style="width: 133.636px;">21 Sep 2020</td>
<td style="width: 569.091px;">
<a href="https://www.smartkarma.com/insights/dcm-partial-offer-for-shimachu-coming" target="_blank" data-smartkarma-citation="insights:43444" rel="noopener">DCM Partial Offer for Shimachu Coming?</a> </td>
</tr>
<tr>
<td style="width: 133.636px;">4 Oct 2020</td>
<td style="width: 569.091px;">
<a href="https://www.smartkarma.com/insights/dcm-does-a-full-takeover-of-shimachu-looks-like-a-strong-price-look-again" target="_blank" data-smartkarma-citation="insights:43806" rel="noopener">DCM Does a Full Takeover of Shimachu - Looks Like a Strong Price. Look Again.</a> </td>
</tr>
<tr>
<td style="width: 133.636px;">21 Oct 2020</td>
<td style="width: 569.091px;">
<a href="https://www.smartkarma.com/insights/nitori-to-make-a-rival-bid-for-shimachu-more-fun-to-go" target="_blank" data-smartkarma-citation="insights:44353" rel="noopener">Nitori To Make a Rival Bid for Shimachu? More Fun To Go</a> </td>
</tr>
<tr>
<td style="width: 133.636px;">28 Oct 2020</td>
<td style="width: 569.091px;">
<a href="https://www.smartkarma.com/insights/gaming-out-a-nitori-bid-for-shimachu" target="_blank" data-smartkarma-citation="insights:44636" rel="noopener">Gaming Out a Nitori Bid for Shimachu</a> </td>
</tr>
<tr><td colspan="2"></td></tr>
<tr><td colspan="2" style="width: 133.636px;">Additional recommended reading, by <a href="https://www.smartkarma.com/profiles/michael-causton" target="_blank" data-smartkarma-citation="accounts:2415" rel="noopener">Michael Causton</a> </td></tr>
<tr>
<td style="width: 133.636px;">4 Oct 2020</td>
<td style="width: 569.091px;">
<a href="https://www.smartkarma.com/insights/a-new-era-of-home-centre-consolidation-starts-as-dcm-buys-shimachu" target="_blank" data-smartkarma-citation="insights:43851" rel="noopener">A New Era of Home Centre Consolidation Starts as DCM Buys Shimachu</a> </td>
</tr>
</tbody></table>

That Nitori Holdings (9843 JP) has had an interest in Shimachu Co Ltd (8184 JP) hasn't been secret, per se, since the Nikkei article on the 20th. That it has had a deep rather than passing interest has been seen in the tone and depth of the media articles which have followed this expression of interest. In Nitori To Make a Rival Bid for Shimachu? More Fun To Go I suggested their presence made for more fun and today we got more fun.   Today Nitori showed that it has a strong interest as it bid well through the mid-point of the DCF valuation range from its financial advisor, and just a few percent shy of its top end. The bid at ¥5500/share is now announced, and as long as the conditions remain un-breached, Nitori intends to launch a Tender Offer when the defeating conditions are met, without regard to whether Shimachu recommends the deal or not. Functionally, this means an "OK" from the JFTC and lack of serious intervention by Shimachu. The Offer is expected to launch, assuming conditions permit, by "mid November" (which I would take to mean latter half.This was a buy at ¥3500-3600 in late Sep when it was "just" a potential partial offer. It became a buy when it was at terms at ¥4200 and was too cheap. Now Nitori has come in and bid ¥5500/share it starts looking like we are closer to a fuller price. Not completely full mind you, but fuller. Tactics and response start to come into play. Will DCM respond? Will Shimachu's Independent Committee take the Nitori bid seriously? Will Shimachu reject?There are a bunch of moving parts here and while I tried to offer a preview in Gaming Out a Nitori Bid for Shimachu this bid actually probably falls between the cracks so I take yet another look. More below the fold. 
Insights so far in the series

Date
Title


21 Sep 2020

DCM Partial Offer for Shimachu Coming? 


4 Oct 2020

DCM Does a Full Takeover of Shimachu - Looks Like a Strong Price. Look Again. 


21 Oct 2020

Nitori To Make a Rival Bid for Shimachu? More Fun To Go 


28 Oct 2020

Gaming Out a Nitori Bid for Shimachu 


Additional recommended reading, by Michael Causton 

4 Oct 2020

A New Era of Home Centre Consolidation Starts as DCM Buys Shimachu 



Nitori Bids UP For Shimachu - Now Things Slow Down

This morning's Yomiuri newspaper has an <a href="https://www.yomiuri.co.jp/economy/20201028-OYT1T50030/" target="_blank" rel="noopener">article</a> (paywalled) which says that <a href="https://www.smartkarma.com/entities/nitori-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:20386:1" rel="noopener">Nitori Holdings (9843 JP)</a> will, within this week, launch a Tender Offer for <a href="https://www.smartkarma.com/entities/shimachu-co-ltd" target="_blank" data-smartkarma-citation="entities:5235:1" rel="noopener">Shimachu Co Ltd (8184 JP)</a>, putting itself in competition with <a href="https://www.smartkarma.com/entities/dcm-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:13042:1" rel="noopener">Dcm Holdings (3050 JP)</a> which has already launched a Tender Offer at JPY 4200/share, currently set to expire on the 16 November.The possibility of Nitori coming in was  flagged by the Nikkei on the 20th, late, and Shimachu shares jumped more than 10% the next day, and have recently been trading in the JPY 4,700-4,800 area. This development was discussed in <a href="https://www.smartkarma.com/insights/nitori-to-make-a-rival-bid-for-shimachu-more-fun-to-go" target="_blank" data-smartkarma-citation="insights:44353" rel="noopener">Nitori To Make a Rival Bid for Shimachu? More Fun To Go</a> after discussing the original Tender Offer by DCM (which was stated as too light a bid) in <a href="https://www.smartkarma.com/insights/dcm-does-a-full-takeover-of-shimachu-looks-like-a-strong-price-look-again" target="_blank" data-smartkarma-citation="insights:43806" rel="noopener">DCM Does a Full Takeover of Shimachu - Looks Like a Strong Price. Look Again.</a> An official unsolicited TOB by Nitori would be an interesting hostile-but-not-necessarily-so bid for what may be the last good quality Tokyo-based asset of the type available to be scooped up (there are other chains of similar-type stores, but nothing so broad-based, branded, or extensive to my knowledge).Right now, we have a lack of information. We have a newspaper article by a paper which has not yet (to my knowledge) discussed the matter. But the shares are trading now through JPY 4,900/share.And it is worth gaming out the possibilities, preparing for how you will react when there is no additional news or immediate reaction.As a friend often iterates, "Plan the Trade, Trade the Plan."

This morning's Yomiuri newspaper has an article (paywalled) which says that Nitori Holdings (9843 JP) will, within this week, launch a Tender Offer for Shimachu Co Ltd (8184 JP), putting itself in competition with Dcm Holdings (3050 JP) which has already launched a Tender Offer at JPY 4200/share, currently set to expire on the 16 November.The possibility of Nitori coming in was  flagged by the Nikkei on the 20th, late, and Shimachu shares jumped more than 10% the next day, and have recently been trading in the JPY 4,700-4,800 area. This development was discussed in Nitori To Make a Rival Bid for Shimachu? More Fun To Go after discussing the original Tender Offer by DCM (which was stated as too light a bid) in DCM Does a Full Takeover of Shimachu - Looks Like a Strong Price. Look Again. An official unsolicited TOB by Nitori would be an interesting hostile-but-not-necessarily-so bid for what may be the last good quality Tokyo-based asset of the type available to be scooped up (there are other chains of similar-type stores, but nothing so broad-based, branded, or extensive to my knowledge).Right now, we have a lack of information. We have a newspaper article by a paper which has not yet (to my knowledge) discussed the matter. But the shares are trading now through JPY 4,900/share.And it is worth gaming out the possibilities, preparing for how you will react when there is no additional news or immediate reaction.As a friend often iterates, "Plan the Trade, Trade the Plan."

Equity Analyst, LightStream Research

Oshadhi Kumarasiri

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

The day before (20th October 2020), Nikkei revealed that <a href="https://www.smartkarma.com/entities/nitori-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:20386:1" rel="noopener">Nitori Holdings (9843 JP)</a> is considering a rival bid to acquire the homecenter and furnishing retailer <a href="https://www.smartkarma.com/entities/shimachu-co-ltd" target="_blank" data-smartkarma-citation="entities:5235:1" rel="noopener">Shimachu Co Ltd (8184 JP)</a> after <a href="https://www.smartkarma.com/entities/dcm-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:13042:1" rel="noopener">Dcm Holdings (3050 JP)</a> offered ¥4,200 per share to take the company private via a tender offer on 4th October.Nitori is expected to outbid DCM and there could be others like Cainz and Aeon interested in the relatively small sized, but asset rich Shimachu. As the likelihood of a bidding war intensifies, we analyse Shimachu’s valuation to understand how faraway DCM’s offer is from the upper limit of Shimachu’s valuation.

The day before (20th October 2020), Nikkei revealed that Nitori Holdings (9843 JP) is considering a rival bid to acquire the homecenter and furnishing retailer Shimachu Co Ltd (8184 JP) after Dcm Holdings (3050 JP) offered ¥4,200 per share to take the company private via a tender offer on 4th October.Nitori is expected to outbid DCM and there could be others like Cainz and Aeon interested in the relatively small sized, but asset rich Shimachu. As the likelihood of a bidding war intensifies, we analyse Shimachu’s valuation to understand how faraway DCM’s offer is from the upper limit of Shimachu’s valuation.

Fair Value of Real-Estate Warrants More Upside

The Nikkei just released an <a href="https://www.nikkei.com/article/DGXMZO65246280Q0A021C2MM8000/" target="_blank" rel="noopener">article</a> suggesting that home decoration and home accessory giant <a href="https://www.smartkarma.com/entities/nitori-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:20386:1" rel="noopener">Nitori Holdings (9843 JP)</a> is considering making a rival bid for homecenter and furnishing retailer <a href="https://www.smartkarma.com/entities/shimachu-co-ltd" target="_blank" data-smartkarma-citation="entities:5235:1" rel="noopener">Shimachu Co Ltd (8184 JP)</a>, which is currently under offer from homecenter industry #2 <a href="https://www.smartkarma.com/entities/dcm-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:13042:1" rel="noopener">Dcm Holdings (3050 JP)</a>.This throws the cat in amongst the pigeons.  In <a href="https://www.smartkarma.com/insights/dcm-does-a-full-takeover-of-shimachu-looks-like-a-strong-price-look-again" target="_blank" data-smartkarma-citation="insights:43806" rel="noopener">DCM Does a Full Takeover of Shimachu - Looks Like a Strong Price; Look Again</a> I argued the price offered by DCM was not as full as it could be. The attractive traits of Shimachu at the ¥4200 TOB Price included the fact that it is Tokyo-based, where average income, high population density, and the slowest demographic decay of any region make for a (relatively) attractive addressable market, and the fact that it has a relatively attractive Land/Property basket which could be sold and leased back. The TOB price was effectively the book value of that PP&amp;E basket, which meant a sale and leaseback would make the takeover "free."That meant DCM's deal for Shimachu could be vulnerable. There aren't that many Tokyo-based distribution assets in the space, which is seen as both ripe for consolidation and as a strong beneficiary of the covid WFH "nesting" phenomenon in particular and an ongoing trend to greater refurb and leisure spending in the bigger picture.I expect this pops on the open. It should stay popped. Watch for more detail from Nitori. And I expect DCM won't give up easily if Nitori comes in. More details on where this could go below the fold.

The Nikkei just released an article suggesting that home decoration and home accessory giant Nitori Holdings (9843 JP) is considering making a rival bid for homecenter and furnishing retailer Shimachu Co Ltd (8184 JP), which is currently under offer from homecenter industry #2 Dcm Holdings (3050 JP).This throws the cat in amongst the pigeons.  In DCM Does a Full Takeover of Shimachu - Looks Like a Strong Price; Look Again I argued the price offered by DCM was not as full as it could be. The attractive traits of Shimachu at the ¥4200 TOB Price included the fact that it is Tokyo-based, where average income, high population density, and the slowest demographic decay of any region make for a (relatively) attractive addressable market, and the fact that it has a relatively attractive Land/Property basket which could be sold and leased back. The TOB price was effectively the book value of that PP&amp;E basket, which meant a sale and leaseback would make the takeover "free."That meant DCM's deal for Shimachu could be vulnerable. There aren't that many Tokyo-based distribution assets in the space, which is seen as both ripe for consolidation and as a strong beneficiary of the covid WFH "nesting" phenomenon in particular and an ongoing trend to greater refurb and leisure spending in the bigger picture.I expect this pops on the open. It should stay popped. Watch for more detail from Nitori. And I expect DCM won't give up easily if Nitori comes in. More details on where this could go below the fold. 

Nitori To Make a Rival Bid for Shimachu? More Fun To Go

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Thematic (Sector/Industry)

<div>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/163/118/original/2020-10-03_15-34-01.png?1601706874" class="editor-image img-responsive" data-smartkarma-image-id="163118"></figure><div class="content-caption">Source for all charts &amp; tables: Japan Analytics</div>
WARMING UP - Earnings momentum is finally on the 'up'. Our Interim Forecast/Revision Score data series which runs from March to September finished 2020 on a two-month high, while both the Annual series are above their September low points. The divergence between domestic non-manufacturing and globally-orientated manufacturing companies continues to widen exemplified by <a href="https://www.smartkarma.com/entities/honda-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:154:1" rel="noopener">Honda Motor (7267 JP)</a>'s announcement of their decision to pull out of Formula 1 from the end of the 2021 season. Although trailing earnings have also stabilised, operating and net income forecasts and their 'gap to trailing' continue to increase. The forward multiple is 32.5 times. 
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/163/261/original/2020-10-04_07-12-52.png?1601763187" class="editor-image img-responsive" data-smartkarma-image-id="163261"></figure>• BEST &amp; WORST •
</div><div>Our best and worst pair is home centre <a href="https://www.smartkarma.com/entities/shimachu-co-ltd" target="_blank" data-smartkarma-citation="entities:5235:1" rel="noopener">Shimachu (8184 JP)</a> for whom a rumoured bid from peer DCM has emerged and diaper machinery maker and small-cap value investor favourite and Unicharm proxy<a href="https://www.smartkarma.com/entities/zuiko-corp" target="_blank" data-smartkarma-citation="entities:5568:1" rel="noopener"> Zuiko (6279 JP)</a>. </div><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/163/135/original/2020-10-03_17-07-27.png?1601712488" class="editor-image img-responsive" data-smartkarma-image-id="163135"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/163/136/original/2020-10-03_17-08-41.png?1601712545" class="editor-image img-responsive" data-smartkarma-image-id="163136"></figure><hr><div>DAILY STATS</div><hr><div>18 Quarterly Results</div><div><ul style="list-style-type: disc;">
<li>Results Score: 56% Positive / 11% Neutral / 33% Negative</li>
<li>Average Results Score Change: 0.0 points</li>
<li>Average % Change in Revenue: -9.6% Quarter YoY / -5.2% Rolling TTM YoY </li>
<li>Average Operating Profit Margin Change: -2.6ppt</li>
<li>Percentage Making Quarterly Losses: 33%</li>
</ul></div><hr><div>9 Annual • 6 Interim Forecasts/Revisions</div><div><ul style="list-style-type: disc;">
<li>Annual Forecast/Revision Score: 33% Positive /22% Neutral / 44% Negative</li>
<li>Interim Forecast/Revision Score Change: 50% Positive / 17% Neutral / 33% Negative</li>
<li>Average Forecast/Revision Score Change: -2.1 points</li>
</ul></div>


Source for all charts &amp; tables: Japan Analytics
WARMING UP - Earnings momentum is finally on the 'up'. Our Interim Forecast/Revision Score data series which runs from March to September finished 2020 on a two-month high, while both the Annual series are above their September low points. The divergence between domestic non-manufacturing and globally-orientated manufacturing companies continues to widen exemplified by Honda Motor (7267 JP)'s announcement of their decision to pull out of Formula 1 from the end of the 2021 season. Although trailing earnings have also stabilised, operating and net income forecasts and their 'gap to trailing' continue to increase. The forward multiple is 32.5 times. 
• BEST &amp; WORST •
Our best and worst pair is home centre Shimachu (8184 JP) for whom a rumoured bid from peer DCM has emerged and diaper machinery maker and small-cap value investor favourite and Unicharm proxy Zuiko (6279 JP). DAILY STATS18 Quarterly Results
Results Score: 56% Positive / 11% Neutral / 33% Negative
Average Results Score Change: 0.0 points
Average % Change in Revenue: -9.6% Quarter YoY / -5.2% Rolling TTM YoY 
Average Operating Profit Margin Change: -2.6ppt
Percentage Making Quarterly Losses: 33%
9 Annual • 6 Interim Forecasts/Revisions
Annual Forecast/Revision Score: 33% Positive /22% Neutral / 44% Negative
Interim Forecast/Revision Score Change: 50% Positive / 17% Neutral / 33% Negative
Average Forecast/Revision Score Change: -2.1 points


🇯🇵 JAPAN • Results & Revisions 10/​​​​​02 DCM (Under)Bids for Shimachu, Zuiko>Unicharm, Ktk>Canon

Japan

DCM Holdings Co., Ltd. is a holding company established through merger of Kahma, Daiki, and Homac.  The Company operates home center chain stores throughout Japan.  DCM Japan Holdings offers merchandise such as home improvement products, household utensils, gardening supplies, sporting/leisure goods, and pet products .

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52-week Range	0.00 - 0.00
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DCM Holdings (3050 JP)

Nitori Bids UP For Shimachu - Now Things Slow Down

Nitori is out their bid, higher than the market was speculating. Now we wait. Shimachu's SC will get the dossier, there will be a beauty contest,...

Travis Lundy

Gaming Out a Nitori Bid for Shimachu

The Yomiuri says Nitori will launch a TOB as soon as this week. This means Shimachu is quite likely in play, imminently. There are multiple...

Travis Lundy

Fair Value of Real-Estate Warrants More Upside

Nikkei revealed that Nitori is considering a rival bid to acquire the homecenter and furnishing retailer Shimachu after DCM offered ¥4,200 per...

Oshadhi Kumarasiri

Nitori To Make a Rival Bid for Shimachu? More Fun To Go

DCM's bid for Shimachu looked good. It wasn't that good. The capital structure and location base means that the company was easily worth 30% more,...

Travis Lundy

🇯🇵 JAPAN • Results & Revisions 10/02 DCM (Under)Bids for Shimachu, Zuiko>Unicharm, Ktk>Canon

• BEST & WORST • The release of earnings announcements, forecasts and revisions was unaffected, and our best and worst pair is medical wear...

Campbell Gunn

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Nitori Bids UP For Shimachu - Now Things Slow Down

Nitori is out their bid, higher than the market was speculating. Now we wait. Shimachu's SC will get the dossier, there will be a beauty contest,...

Travis Lundy

Gaming Out a Nitori Bid for Shimachu

The Yomiuri says Nitori will launch a TOB as soon as this week. This means Shimachu is quite likely in play, imminently. There are multiple...

Travis Lundy

Fair Value of Real-Estate Warrants More Upside

Nikkei revealed that Nitori is considering a rival bid to acquire the homecenter and furnishing retailer Shimachu after DCM offered ¥4,200 per...

Oshadhi Kumarasiri

Nitori To Make a Rival Bid for Shimachu? More Fun To Go

DCM's bid for Shimachu looked good. It wasn't that good. The capital structure and location base means that the company was easily worth 30% more,...

Travis Lundy

🇯🇵 JAPAN • Results & Revisions 10/​​​​​02 DCM (Under)Bids for Shimachu, Zuiko>Unicharm, Ktk>Canon

• BEST & WORST • The release of earnings announcements, forecasts and revisions was unaffected, and our best and worst pair is medical wear...

Campbell Gunn

🇯🇵 JAPAN • Results & Revisions 10/02 DCM (Under)Bids for Shimachu, Zuiko>Unicharm, Ktk>Canon