Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>In the mid-late teens, four refinery groups merged to create two refinery groups - JX and Tonen General became JXTG under <a href="https://www.smartkarma.com/entities/eneos-holdings-inc" target="_blank" data-smartkarma-citation="entities:638:1" rel="noopener">ENEOS Holdings (5020 JP)</a> and Idemitsu took over ShowaShell.</li>
<li>When Idemitsu got ShowaShell, it got 50+% in <a href="https://www.smartkarma.com/entities/toa-oil-co-ltd" target="_blank" data-smartkarma-citation="entities:11021:1" rel="noopener">Toa Oil Co Ltd (5008 JP)</a>, 6.58% of <a href="https://www.smartkarma.com/entities/fuji-oil-co-ltd" target="_blank" data-smartkarma-citation="entities:12970:1" rel="noopener">Fuji Oil Co Ltd (5017 JP)</a>. In 2020, they tried to buy in Toa.</li>
<li>That was delayed by an activist. Today, Idemitsu announced they had gone to 23% in Fuji Oil. That stake will go up before it goes down.</li>
</ul>


In the mid-late teens, four refinery groups merged to create two refinery groups - JX and Tonen General became JXTG under ENEOS Holdings (5020 JP) and Idemitsu took over ShowaShell.
When Idemitsu got ShowaShell, it got 50+% in Toa Oil Co Ltd (5008 JP), 6.58% of Fuji Oil Co Ltd (5017 JP). In 2020, they tried to buy in Toa.
That was delayed by an activist. Today, Idemitsu announced they had gone to 23% in Fuji Oil. That stake will go up before it goes down.


Idemitsu (5019): First SumiChem's, Now JERA's Stake in Fuji Oil (5017) To Go to 22%. It's Coming...

David Blennerhassett

<ul>
<li>
<a href="https://www.smartkarma.com/entities/pasona-group-inc" target="_blank" data-smartkarma-citation="entities:15778:1" rel="noopener">Pasona (2168 JP)</a>will pay out 10-20% of the extraordinary gain from the <a href="https://www.smartkarma.com/entities/benefit-one-inc" target="_blank" data-smartkarma-citation="entities:14502:1" rel="noopener">Benefit One (2412 JP)</a> sale. It will take its sweet time doing so. For no apparent reason.</li>
<li>
<a href="https://www.smartkarma.com/entities/hang-lung-properties-ltd" target="_blank" data-smartkarma-citation="entities:49:1" rel="noopener">Hang Lung Properties (101 HK)</a>'s first-ever scrip dividend provides the means for the Chan Family to indirectly chip away at minorities. </li>
<li>
<a href="https://www.smartkarma.com/entities/hollysys-automation-technologies" target="_blank" data-smartkarma-citation="entities:26078:1" rel="noopener">Hollysys Automation Technologies (HOLI US)</a> accountant resignation announcement is a nothing burger. An  update on PRC regulatory approvals would be welcome about now though. </li>
</ul>



Pasona (2168 JP)will pay out 10-20% of the extraordinary gain from the Benefit One (2412 JP) sale. It will take its sweet time doing so. For no apparent reason.

Hang Lung Properties (101 HK)'s first-ever scrip dividend provides the means for the Chan Family to indirectly chip away at minorities. 

Hollysys Automation Technologies (HOLI US) accountant resignation announcement is a nothing burger. An  update on PRC regulatory approvals would be welcome about now though. 


Last Week in Event SPACE: Pasona/Benefit One, Hang Lung Properties, Hollysys, Azure Minerals

<ul>
<li>
<a href="https://www.smartkarma.com/entities/cosmo-energy-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:26565:1" rel="noopener">Cosmo Energy Holdings (5021 JP)</a>, subject of a selldown by its major shareholder (discussed <a href="https://www.smartkarma.com/insights/cosmo-oil-5021-jp-accelerated-block-offering-big-discount-but" target="_blank" rel="noopener">here</a>), then a large stake purchase by activist Murakami-san (discussed <a href="https://www.smartkarma.com/insights/activist-murakami-san-goes-substantial-on-cosmo-oil-5021" target="_blank" rel="noopener">here</a>) announced earnings and a buyback.</li>
<li>The buyback is large enough to matter to other shareholders. </li>
<li>The shareholder structure is interesting enough that investors need to pay attention to the possibilities.</li>
</ul>



Cosmo Energy Holdings (5021 JP), subject of a selldown by its major shareholder (discussed here), then a large stake purchase by activist Murakami-san (discussed here) announced earnings and a buyback.
The buyback is large enough to matter to other shareholders. 
The shareholder structure is interesting enough that investors need to pay attention to the possibilities.


Cosmo Oil (5021) Shareholder Return Policy Is Bigger Than It Looks

<ul>
<li>Four weeks ago, the sovereign wealth fund of the UAE sold out of a 15% position in <a href="https://www.smartkarma.com/entities/cosmo-energy-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:26565:1" rel="noopener">Cosmo Energy Holdings (5021 JP)</a> they'd held for 15yrs. </li>
<li>Today we see noted Japanese activist Murakami Yoshiaki and affiliates have purchased 5+% of the company, including a large chunk the day after the block trade.</li>
<li>Oftentimes he buys stakes in industries where consolidation is overdue and/or natural. Construction has been one such sector. Refiners probably need consolidation too, but it's not clear it's easy here.</li>
</ul>


Four weeks ago, the sovereign wealth fund of the UAE sold out of a 15% position in Cosmo Energy Holdings (5021 JP) they'd held for 15yrs. 
Today we see noted Japanese activist Murakami Yoshiaki and affiliates have purchased 5+% of the company, including a large chunk the day after the block trade.
Oftentimes he buys stakes in industries where consolidation is overdue and/or natural. Construction has been one such sector. Refiners probably need consolidation too, but it's not clear it's easy here.


Activist Murakami-San Goes Substantial on Cosmo Oil (5021)

<h3>The Idemitsu bid for Toa Oil looks bumpity. It is a weird situation though.</h3>In mid-December, <a href="https://www.smartkarma.com/entities/idemitsu-kosan-co-ltd" target="_blank" data-smartkarma-citation="entities:109:1" rel="noopener">Idemitsu Kosan (5019 JP)</a> - one of the two large refinery groups in Japan, formed from the merger of Idemitsu Kosan and Showa Shell Oil KK (the other large one being <a href="https://www.smartkarma.com/entities/eneos-holdings-inc" target="_blank" data-smartkarma-citation="entities:638:1" rel="noopener">ENEOS Holdings (5020 JP)</a> formed from JX and Tonen General) - announced a Tender Offer for the minority portion of <a href="https://www.smartkarma.com/entities/toa-oil-co-ltd" target="_blank" data-smartkarma-citation="entities:11021:1" rel="noopener">Toa Oil Co Ltd (5008 JP)</a>.Idemitsu had "inherited" the majority portion in the acquisition of Showa Shell a couple years ago, and had not wrapped it up yet. Toa Oil has for years been considered a jewel of an asset because of its extraordinarily high Nelson Complexity Index among refineries in Japan. This allows the company to get more, and more interesting products, out of every barrel of oil put in, and it allows the use of very heavy oil which is less expensive. Because the company gets 90% of its revenue acting as an outsourced refinery for Idemitsu's raw materials and output, it carries little inventory and earns a tolling spread, which normally would be negotiated on an arms' length basis. Given the replacement value of the asset, and the market value of the use of the asset, it would appear that the current agreement with the current level of income it affords Toa is not quite arms' length. That would be a good reason to object to the pricing of the deal. If the refinery asset were sold on the open market in an auction, it would likely fetch a higher price for shareholders, including Idemitsu. The original deal and all its parameters was discussed in <a href="https://www.smartkarma.com/insights/idemitsu-launches-lowball-tender-offer-for-subsidiary-toa-oil-5008" target="_blank" data-smartkarma-citation="insights:46384" rel="noopener">Idemitsu Launches Lowball Tender Offer for Subsidiary Toa Oil (5008)</a> and was updated in <a href="https://www.smartkarma.com/insights/toa-oil-5008-tender-offer-update-looks-bumpity" target="_blank" data-smartkarma-citation="insights:46996" rel="noopener">Toa Oil (5008) Tender Offer Update - Looks Bumpity.</a> <h2>The NEW News</h2><ul>
<li>On 20 January, Toa Oil announced the record date for the EGM to be 10 February.</li>
<li>Since I last wrote, the largest shareholder has gotten larger, adding 2% to its position as of 21 January (and reported 28 January) and they now hold 22.98%. </li>
<li>On Friday 29 January, Toa Oil reported its <a href="https://www.toaoil.co.jp/investor/pdf/settlement_report_202103_3.pdf" target="_blank" rel="noopener">Q3 earnings</a>.</li>
<li>Toa Oil also announced a revision to its <a href="https://www.toaoil.co.jp/investor/pdf/20210129_gyousekiyosou_shusei.pdf" target="_blank" rel="noopener">full-year forecasts</a>.  The revenue forecast was revised by +7.7%. OP was revised by +509.8%. Net Profit was revised by +418.9%. Those are very big numbers. </li>
<li>Based on that revision, Toa Oil had to revise its <a href="https://www.toaoil.co.jp/investor/pdf/20210129_ikenhyoumei_henkou_english.pdf" target="_blank" rel="noopener">Target Opinion Statement</a>.</li>
<li>And because Toa Oil revised its Target Opinion Statement, pursuant to Article 27-8 Para 8 of the Financial Instruments and Exchange Act, Idemitsu had to <a href="https://ssl4.eir-parts.net/doc/5019/ir_material9/153752/00.pdf" target="_blank" rel="noopener">extend the Tender Offer</a> so there were 10 business days between the announcement and the tender close. The old close was 2 February. The new close is 15 February. </li>
<li>I expect that means Toa Oil will amend the record date for the EGM because Toa and Idemitsu would not want the EGM record date to be before Idemitsu had secured the extra shares.</li>
</ul>The quantum of the net change in the revision in earnings forecast should merit a little complaint by shareholders. The change in net income this year alone vs forecast is 5.1% of the Tender Offer Price Market Cap. Even if there is no change to future earnings EVER, that is 5.1% more. Given that the Tender Offer Price was the wrong price in the first place, I imagine shareholders who have seen the price trade above the Tender Offer Price every day since the shares were free to trade (on the first day after the announcement, the shares closed limit up but below the tender offer price), will be even less inclined to accept a low-ball price. More discussion below.

The Idemitsu bid for Toa Oil looks bumpity. It is a weird situation though.In mid-December, Idemitsu Kosan (5019 JP) - one of the two large refinery groups in Japan, formed from the merger of Idemitsu Kosan and Showa Shell Oil KK (the other large one being ENEOS Holdings (5020 JP) formed from JX and Tonen General) - announced a Tender Offer for the minority portion of Toa Oil Co Ltd (5008 JP).Idemitsu had "inherited" the majority portion in the acquisition of Showa Shell a couple years ago, and had not wrapped it up yet. Toa Oil has for years been considered a jewel of an asset because of its extraordinarily high Nelson Complexity Index among refineries in Japan. This allows the company to get more, and more interesting products, out of every barrel of oil put in, and it allows the use of very heavy oil which is less expensive. Because the company gets 90% of its revenue acting as an outsourced refinery for Idemitsu's raw materials and output, it carries little inventory and earns a tolling spread, which normally would be negotiated on an arms' length basis. Given the replacement value of the asset, and the market value of the use of the asset, it would appear that the current agreement with the current level of income it affords Toa is not quite arms' length. That would be a good reason to object to the pricing of the deal. If the refinery asset were sold on the open market in an auction, it would likely fetch a higher price for shareholders, including Idemitsu. The original deal and all its parameters was discussed in Idemitsu Launches Lowball Tender Offer for Subsidiary Toa Oil (5008) and was updated in Toa Oil (5008) Tender Offer Update - Looks Bumpity. The NEW News
On 20 January, Toa Oil announced the record date for the EGM to be 10 February.
Since I last wrote, the largest shareholder has gotten larger, adding 2% to its position as of 21 January (and reported 28 January) and they now hold 22.98%. 
On Friday 29 January, Toa Oil reported its Q3 earnings.
Toa Oil also announced a revision to its full-year forecasts.  The revenue forecast was revised by +7.7%. OP was revised by +509.8%. Net Profit was revised by +418.9%. Those are very big numbers. 
Based on that revision, Toa Oil had to revise its Target Opinion Statement.
And because Toa Oil revised its Target Opinion Statement, pursuant to Article 27-8 Para 8 of the Financial Instruments and Exchange Act, Idemitsu had to extend the Tender Offer so there were 10 business days between the announcement and the tender close. The old close was 2 February. The new close is 15 February. 
I expect that means Toa Oil will amend the record date for the EGM because Toa and Idemitsu would not want the EGM record date to be before Idemitsu had secured the extra shares.
The quantum of the net change in the revision in earnings forecast should merit a little complaint by shareholders. The change in net income this year alone vs forecast is 5.1% of the Tender Offer Price Market Cap. Even if there is no change to future earnings EVER, that is 5.1% more. Given that the Tender Offer Price was the wrong price in the first place, I imagine shareholders who have seen the price trade above the Tender Offer Price every day since the shares were free to trade (on the first day after the announcement, the shares closed limit up but below the tender offer price), will be even less inclined to accept a low-ball price. More discussion below.

Toa Oil (5008) Tender Offer Updated Update - STILL Looks Bumpity

Japan

Fuji Oil Company Ltd a holding company which was established through the merger of Arabian Oil Co and Fuji Oil Co.  The Company operates mining and refining crude oil, natural gas, and minerals.  AOC Holding manages subsidiarieswhich produce and sell crude oil and coal products.

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Fuji Oil Co Ltd (5017 JP)

Idemitsu (5019): First SumiChem's, Now JERA's Stake in Fuji Oil (5017) To Go to 22%. It's Coming...

Idemitsu has bought two corporate stakes in Fuji Oil to go from 6+% to nearly 22%. This is not a big surprise. There's history. Medium-long-term, a...

Travis Lundy

Last Week in Event SPACE: Pasona/Benefit One, Hang Lung Properties, Hollysys, Azure Minerals

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

Cosmo Oil (5021) Shareholder Return Policy Is Bigger Than It Looks

Cosmo Oil had a great year, and the 2022 Forecast (to March 2023) is stronger than I expected. The Shareholder Return Policy is manifested by a...

Travis Lundy

Activist Murakami-San Goes Substantial on Cosmo Oil (5021)

Murakami-san seems to have bailed on construction names recently and is now in two refiners, having gone substantial on Cosmo Oil (5021) after the...

Travis Lundy

Toa Oil (5008) Tender Offer Updated Update - STILL Looks Bumpity

Toa Oil reported Q3 results, and a HUGE jump in FY forecasts. OP+500%. Net Profit +400%. Oil demand is better, and the recent spike in electricity...

Travis Lundy

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