Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

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.

Equity Bottom-Up

Hitachi Construction Machinery / Equity Bottom-Up

<p>HCM 2QFY21 results were strong with ¥246bn in revenue (+7.6% QoQ, +28.7% YoY) and OP of ¥26bn (OPM of 10.7% compared to 3.2% and 5.2% respectively in 2QFY21 and 1QFY22). FY guidance was revised up to revenue of ¥920bn (+4.5% vs. previous guidance) and OP of ¥62bn (+19.4% but implying an OPM of 8% in 2HFY22).</p>

HCM 2QFY21 results were strong with ¥246bn in revenue (+7.6% QoQ, +28.7% YoY) and OP of ¥26bn (OPM of 10.7% compared to 3.2% and 5.2% respectively in 2QFY21 and 1QFY22). FY guidance was revised up to revenue of ¥920bn (+4.5% vs. previous guidance) and OP of ¥62bn (+19.4% but implying an OPM of 8% in 2HFY22).

HCM – Could Retest All-Time Highs Given Time But…

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p><a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 JP)</a> has had a tough time of things for years, but they have been problems largely of the company's own manufacture. </p><p>Ill-fated investments led to accounting mishaps, which led to management and internal control issues, which when cleaned up led to more significant tone at the top issues, and in its zeal to remain listed when it probably should have arranged for a take-private rescue in 2017-2018, it ended up being owned to a level of more than 50% by foreign activist investors. </p><p>The company did a giant buyback, re-upped its dividend, and eventually returned to the TOPIX Index this past spring as it returned to the TSE First Section. But "new management" in the form of Nobuaki Kurumatani, who was looking for something to do after not making the top slot at SMBC, was somewhat autocratic, and eventually that triggered the problems which come when not-as-powerful-as-they'd-like autocrats have to rely on others (in this case, regulators) to do their dirty work for them. About 18 months ago when it looked like the activists might decide to oust Kurumatani from his Board seat (and by default, CEO-ship), the company went into Entrenchment Mode and undertook activity about which some activists eventually complained. An internal investigation by the Parents pretended to look under the bed and decided there were No Monsters There. Activists knew what they had experienced was not reflected in that No Monsters Review and demanded an EGM to call an independent review, which The Parents (management) opposed. They got it, then they got the review, and partway through, Kurumatani-san was running out of internal support, so the Board was apparently going to give him the axe. </p><p>Magically, he found someone - his old shop - to say "hey, we'd like to buy out Toshiba, but only if Kurumatani-san stays" (discussed in <a href="https://www.smartkarma.com/insights/toshiba-the-ceo-gets-his-mbo-bidder-and-toshiba-will-get-interestinger" target="_blank" data-smartkarma-citation="insights:50058" rel="noopener">Toshiba - The CEO Gets His MBO Bidder and Toshiba Will Get Interestinger</a> and <a href="https://www.smartkarma.com/insights/gaming-out-a-cvc-bid-for-toshiba-the-right-noises-the-wrong-price-and-toast" target="_blank" data-smartkarma-citation="insights:50229" rel="noopener">Gaming Out a CVC Bid for Toshiba - The Right Noises, The Wrong Price, and Toast</a> (the first of which, coincidentally, followed on <em>exactly</em> a year after I wrote <a href="https://www.smartkarma.com/insights/an-mbo-for-toshiba-not-as-silly-as-it-sounds" target="_blank" data-smartkarma-citation="insights:38199" rel="noopener">An MBO for Toshiba? Not As Silly As It Sounds</a>)).  The board looked at that and decided that was a little too coincidental, and Kurumatani-san was gone (discussed in <a href="https://www.smartkarma.com/insights/toshiba-the-king-is-dead-long-live-the-king" target="_blank" data-smartkarma-citation="insights:50309" rel="noopener">Toshiba - The King Is Dead, Long Live the King</a>). The chatter of an MBO/LBO died down somewhat but did not die as earnings came out, a capital return became possible, then just two weeks before the AGM (one where Kurumatani-san was surely going to have problems if he had stayed) the Independent Report came out (<a href="https://www.smartkarma.com/insights/toshiba-s-2020-agm-investigative-report-is-damning" target="_blank" data-smartkarma-citation="insights:52868" rel="noopener">Toshiba's 2020 AGM Investigative Report Is Damning</a>). The report made it absolutely clear that indeed, there were lots of Monsters Under the Bed, and some of them were actually the Parents themselves, and there were tapes and emails, and a few conveniently destroyed mobile phones. </p><p>In the interim, about 10% of the company had been bought by TOPIX trackers, and that shifted the mix of voting rights for the AGM, but when the damning report came out, some directors were livid because it turned out some directors and old management had effectively lied to them in presenting the first report. It was mayhem. The result? A bunch of directors were ousted and/or not re-elected. Toshiba now has fewer directors than it needed, the former CEO and one-time chairman is back as interim CEO and a search is on for a new CEO and new Chairman, more directors and a Strategic Review for the business is under way. </p><p>There are noises of either an IPO (more likely) or a take-private of the <a href="https://www.smartkarma.com/entities/kioxia" target="_blank" data-smartkarma-citation="entities:29243:1" rel="noopener">Kioxia (6600 JP)</a> unit, but given global sensitivity to access to semiconductors and memory, I think an IPO much more likely. A couple of weeks ago, Toshiba made a <a href="https://www.global.toshiba/ww/news/corporate/2021/09/news-20210908-01.html" target="_blank" rel="noopener">press release</a> regarding the progress the Board was making in its strategic review, saying that any talk of a take-private situation would need to wait until that review was finished. This seemed to upset some investors but it makes utter sense from the standpoint of a Board lacking a full-time CEO, a complete complement of Board members, and a professional Chairman. It also needed some time to deflate expectations and upset on both sides after the Independent Report came out blaming both Toshiba and METI, saying illegality by one or both might have been committed, and METI came out very much defiant because of natsec concerns (which really only affect a small portion of the business). </p><h2>Today's News Is BIG</h2><p>The FT posted an <a href="https://www.ft.com/content/8c1c3cf0-951d-4032-9826-8c4576824db5?shareType=nongift" target="_blank" rel="noopener">article</a> this evening Tokyo time, saying that famed US-based activist firm Elliott Management Corp had bought a significant stake in Toshiba and held talks with management and the Board and advisers. "people close to Toshiba said that Elliott's stake did not exceed 5 per cent." Bloomberg touched base with Elliott who said that Elliott confirmed they were a "large shareholder." Generally, in Japan, that means a 5% stake, but we will see. If they are not over 5% in a Large Shareholder Report by next Thursday, then they aren't a 5% stakeholder today. </p><p>But the FT article is super-interesting, and deserves to be read closely.</p><p>And I have some more thoughts about <em>that</em> below the fold.  </p>

Toshiba Corp (6502 JP) has had a tough time of things for years, but they have been problems largely of the company's own manufacture. Ill-fated investments led to accounting mishaps, which led to management and internal control issues, which when cleaned up led to more significant tone at the top issues, and in its zeal to remain listed when it probably should have arranged for a take-private rescue in 2017-2018, it ended up being owned to a level of more than 50% by foreign activist investors. The company did a giant buyback, re-upped its dividend, and eventually returned to the TOPIX Index this past spring as it returned to the TSE First Section. But "new management" in the form of Nobuaki Kurumatani, who was looking for something to do after not making the top slot at SMBC, was somewhat autocratic, and eventually that triggered the problems which come when not-as-powerful-as-they'd-like autocrats have to rely on others (in this case, regulators) to do their dirty work for them. About 18 months ago when it looked like the activists might decide to oust Kurumatani from his Board seat (and by default, CEO-ship), the company went into Entrenchment Mode and undertook activity about which some activists eventually complained. An internal investigation by the Parents pretended to look under the bed and decided there were No Monsters There. Activists knew what they had experienced was not reflected in that No Monsters Review and demanded an EGM to call an independent review, which The Parents (management) opposed. They got it, then they got the review, and partway through, Kurumatani-san was running out of internal support, so the Board was apparently going to give him the axe. Magically, he found someone - his old shop - to say "hey, we'd like to buy out Toshiba, but only if Kurumatani-san stays" (discussed in Toshiba - The CEO Gets His MBO Bidder and Toshiba Will Get Interestinger and Gaming Out a CVC Bid for Toshiba - The Right Noises, The Wrong Price, and Toast (the first of which, coincidentally, followed on exactly a year after I wrote An MBO for Toshiba? Not As Silly As It Sounds)).  The board looked at that and decided that was a little too coincidental, and Kurumatani-san was gone (discussed in Toshiba - The King Is Dead, Long Live the King). The chatter of an MBO/LBO died down somewhat but did not die as earnings came out, a capital return became possible, then just two weeks before the AGM (one where Kurumatani-san was surely going to have problems if he had stayed) the Independent Report came out (Toshiba's 2020 AGM Investigative Report Is Damning). The report made it absolutely clear that indeed, there were lots of Monsters Under the Bed, and some of them were actually the Parents themselves, and there were tapes and emails, and a few conveniently destroyed mobile phones. In the interim, about 10% of the company had been bought by TOPIX trackers, and that shifted the mix of voting rights for the AGM, but when the damning report came out, some directors were livid because it turned out some directors and old management had effectively lied to them in presenting the first report. It was mayhem. The result? A bunch of directors were ousted and/or not re-elected. Toshiba now has fewer directors than it needed, the former CEO and one-time chairman is back as interim CEO and a search is on for a new CEO and new Chairman, more directors and a Strategic Review for the business is under way. There are noises of either an IPO (more likely) or a take-private of the Kioxia (6600 JP) unit, but given global sensitivity to access to semiconductors and memory, I think an IPO much more likely. A couple of weeks ago, Toshiba made a press release regarding the progress the Board was making in its strategic review, saying that any talk of a take-private situation would need to wait until that review was finished. This seemed to upset some investors but it makes utter sense from the standpoint of a Board lacking a full-time CEO, a complete complement of Board members, and a professional Chairman. It also needed some time to deflate expectations and upset on both sides after the Independent Report came out blaming both Toshiba and METI, saying illegality by one or both might have been committed, and METI came out very much defiant because of natsec concerns (which really only affect a small portion of the business). Today's News Is BIGThe FT posted an article this evening Tokyo time, saying that famed US-based activist firm Elliott Management Corp had bought a significant stake in Toshiba and held talks with management and the Board and advisers. "people close to Toshiba said that Elliott's stake did not exceed 5 per cent." Bloomberg touched base with Elliott who said that Elliott confirmed they were a "large shareholder." Generally, in Japan, that means a 5% stake, but we will see. If they are not over 5% in a Large Shareholder Report by next Thursday, then they aren't a 5% stakeholder today. But the FT article is super-interesting, and deserves to be read closely.And I have some more thoughts about that below the fold.  

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

<p>PHC Holdings and its shareholders aim to raise around US$1.8bn via selling a mix of primary and secondary shares in its Japan IPO. The company is backed by KKR (48.7% stake pre-listing), Mistui (21.5%), Life Science Institute (13.4%) and Panasonic (11.5%).</p><p>PHC is engaged in the development, manufacturing and sale of healthcare devices and services. The company has three main segments: Diabetes Management (35% of FY21 revenue); Healthcare Services (37.9% of FY21 revenue); and Diagnosis/Life Science (26.1% of FY21 revenue).</p><p>PHC’s revenue has increased by 64% over FY19-FY21 and it was up another 29% in 1Q22. The growth has mainly been driven by acquisition of a number of firms over the reporting period. </p><p>Although, its main division, Diabetes Management appears to be suffering from a decline in revenue that has been going on for a while. In addition, it's difficult to pinpoint the growth of its other segments owing to the acquisitions having been completed mid-year.</p><p>Furthermore, it's not clear to us how the company acts as one firm, as all of its acquired firms appear to be working independently and there hasn’t been much mention of synergies.</p>

PHC Holdings and its shareholders aim to raise around US$1.8bn via selling a mix of primary and secondary shares in its Japan IPO. The company is backed by KKR (48.7% stake pre-listing), Mistui (21.5%), Life Science Institute (13.4%) and Panasonic (11.5%).PHC is engaged in the development, manufacturing and sale of healthcare devices and services. The company has three main segments: Diabetes Management (35% of FY21 revenue); Healthcare Services (37.9% of FY21 revenue); and Diagnosis/Life Science (26.1% of FY21 revenue).PHC’s revenue has increased by 64% over FY19-FY21 and it was up another 29% in 1Q22. The growth has mainly been driven by acquisition of a number of firms over the reporting period. Although, its main division, Diabetes Management appears to be suffering from a decline in revenue that has been going on for a while. In addition, it's difficult to pinpoint the growth of its other segments owing to the acquisitions having been completed mid-year.Furthermore, it's not clear to us how the company acts as one firm, as all of its acquired firms appear to be working independently and there hasn’t been much mention of synergies.

PHC Holdings Pre-IPO - Many Companies Rolled into One

<div>
<p><em>This insight covers a bit of history, a bit of teaching about how TOPIX works, a bit about the foreseeable events, and a bit of the fundamentals of the company. If you think you know all that, please don't hesitate to jump immediately to the bottom section where there is a Thin Red Line across the screen and a section titled Short &amp; Sweet Version. That is also the conclusions. </em></p>
<hr>
<h3>The Background</h3>
<p>At the end of March 2016, <a href="https://www.smartkarma.com/entities/hitachi-ltd" target="_blank" data-smartkarma-citation="entities:7797:1" rel="noopener">Hitachi Ltd (6501 JP)</a>,  <a href="https://www.smartkarma.com/entities/hitachi-transport-system-ltd" target="_blank" data-smartkarma-citation="entities:2395:1" rel="noopener">Hitachi Transport System (9086 JP)</a>, and as-yet unlisted <a href="https://www.smartkarma.com/entities/sg-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:26070:1" rel="noopener">SG Holdings (9143 JP)</a>  <a href="https://www.hitachi.com/New/cnews/month/2016/03/f_160330a.pdf" target="_blank" rel="noopener">announced</a> Hitachi Transport was going to spend ¥66.3bn to buy a 20% stake in the unlisted delivery subsidiary (Sagawa Express) of then still-unlisted <a href="https://www.smartkarma.com/entities/sg-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:26070:1" rel="noopener">SG Holdings (9143 JP)</a>, forming a capital and business tie-up looking to merge "within three years" (i.e. merger by 1 April 2019). <a href="https://www.smartkarma.com/entities/hitachi-ltd" target="_blank" data-smartkarma-citation="entities:7797:1" rel="noopener">Hitachi Ltd (6501 JP)</a> was going to sell a 29% stake (out of the 59% they owned) in Hitachi Transport for ¥87.5 billion to SG. They were both going to expand strongly outside of Asia.  HTS was known at the time for its 3PL and "Smart Logistics" capabilities to make customer supply chains more efficient, etc, whereas Sagawa was known as a top last-mile delivery business. The combined entity was set to overtake <a href="https://www.smartkarma.com/entities/yamato-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:2:1" rel="noopener">Yamato Holdings (9064 JP)</a> in terms of revenue and get closer to industry top dog <a href="https://www.smartkarma.com/entities/nippon-express-co-ltd" target="_blank" data-smartkarma-citation="entities:18582:1" rel="noopener">Nippon Express (9062 JP)</a>. It was supposed to help SG improve margins by doing more in B2B. </p>
</div><div>
<p>SG IPOed in late 2017. Three years came and went. Nothing happened. There were a few collaborative projects but it was slow-going, and there were signs of friction. In May 2019 a Medium Term Management Plan (with no mention of SG or Sagawa) was announced, and the Nikkei carried an interview with HTS President Nakatani who said, when asked about the integration..</p>
<blockquote><p>"I am aware that we are moving toward integration. I would like to harmonize future directions." [Nikkei: He showed a positive attitude...] "We have decided to discuss and consider the possibility of business integration, but we have not made any decisions, including any start to discussions."</p></blockquote>
<p>On September 25 last year, the Diamond Online let fly a scoop saying the capital and business tie-up between the two was going to be scrapped. HTS shares fell 10+%. </p>
<div>
<p>Hitachi Transport's first release to the exchange said the article wasn't based on information they announced and that it was not going to be a dissolution of the capital tie-up, just a re-arranging of the deckchairs and a board meeting was going on and there would be an announcement within the day. HTS shares - at that point down 7% on the day - bounced sharply (they closed down 4%).</p>
<p>The announcement after the close talked about a "partial modification" of the business and capital tie-up, but it involved HTS selling its 20% stake in Sagawa Express, and buying back 27.675mm of the 32.35mm shares of HTS SG held. It was almost a full unwind. SG managed to sell fewer than 27.675mm shares in the ToSTNeT-3 transaction as others also jumped in to sell. </p>
<p>My conclusion was to NOT sell that despite the opportunity to be able to do so in size. My conclusion was bullish HTS and basically bearish SG. </p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/226/591/original/Screenshot+2021-08-28+at+4.14.40+PM.png?1630138493" class="editor-image img-responsive" data-smartkarma-image-id="226591"></figure></section><p>That didn't work so well in the first ten weeks, with the share price ratio falling 20% from 1.252 to 1.00 by 1 December 2020. </p>
<p>When the TSE announced its new listing criteria for TSE Prime, there was going to be trouble. There had to be 35% of shares "tradable" and by that time, the register looked as follows:</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/226/604/original/Screenshot+2021-08-28+at+5.41.44+PM.png?1630143753" class="editor-image img-responsive" data-smartkarma-image-id="226604"></figure><p></p></section><p>It did not clear the 35%v threshold (it would have been fine but for the large number of public sellers in the 28 September ToSTNeT-3 transaction.) </p>
<p>By early February 2020, the HTS/SG ratio had reached the ratio of that fateful day announcing the split and by mid-June, the ratio was 26% higher in 9 months. So I am now happier with that call from the past.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/226/603/original/Screenshot+2021-08-28+at+5.35.44+PM.png?1630143372" class="editor-image img-responsive" data-smartkarma-image-id="226603"></figure><p></p></section><p>On 20 April 2021, SG Holdings announced they had sold 4.6mm shares (at JPY 3,119.5). And on 20 May (the yellow dot on the blue line in the chart above), HTS <a href="https://www.hitachi-transportsystem.com/en/news/pdf/20210520_Cancellation%20of%20Treasury%20Shares.pdf" target="_blank" rel="noopener">announced</a> it would cancel 6,975,786 shares (6.2% of shs out) in order to put tradable shares back above 35%. In fact, the sale by SG had done that, and the market did not react. But it was a start, and it kept Hitachi Transport in the TSE Prime section and therefore the TOPIX Index when it launches in April 2022 because tradable shares were back above 35%. </p>
<section class="figure"><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/226/605/original/Screenshot+2021-08-28+at+5.42.00+PM.png?1630143772" class="editor-image img-responsive" data-smartkarma-image-id="226605"></figure><p></p></section></section><p>But there were still a lot of Treasury Shares, which as per the 6 May <a href="https://www.hitachi-transportsystem.com/en/ir/library/presentations/pdf/Presentation%20Material%20of%20financial%20results%20for%20FY2020.pdf" target="_blank" rel="noopener">Results Presentation</a>, included the use of stock (and cash) for alliance and M&amp;A. </p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/226/594/original/Screenshot+2021-08-28+at+4.29.03+PM.png?1630139904" class="editor-image img-responsive" data-smartkarma-image-id="226594"></figure></section><p>With the shares rallying, on 19 August, the company <a href="https://www.hitachi-transportsystem.com/en/news/pdf/20210819_Cancellation%20of%20Treasury%20Shares.pdf" target="_blank" rel="noopener">announced</a> that on 3 September, they would cancel 20,699,214 shares out (19.8% of total shares out), leaving treasury shares of 228,308. That would put Hitachi to just under 40% (where there is no question of consolidation if Hitachi Transport doesn't want), it puts SG Holdings to 9.8% (i.e. still below 10%), and puts the public at greater than 50%. </p>
<section class="figure"><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/226/606/original/Screenshot+2021-08-28+at+5.42.15+PM.png?1630143788" class="editor-image img-responsive" data-smartkarma-image-id="226606"></figure><p></p></section><p>The shares reacted well to that too. </p></section><div class="content-highlight">
<p><strong>But all this creates a curious problem. </strong></p>
<p>The float is now 50%, vs 41% pre-selldown, and 33.6% post-dealbreak, and the stock will stay in Prime.</p>
<p>But there is selling to come. </p>
</div>
<p>More below the fold. </p>
<p></p>
</div>
</div>


This insight covers a bit of history, a bit of teaching about how TOPIX works, a bit about the foreseeable events, and a bit of the fundamentals of the company. If you think you know all that, please don't hesitate to jump immediately to the bottom section where there is a Thin Red Line across the screen and a section titled Short &amp; Sweet Version. That is also the conclusions. 

The Background
At the end of March 2016, Hitachi Ltd (6501 JP),  Hitachi Transport System (9086 JP), and as-yet unlisted SG Holdings (9143 JP)  announced Hitachi Transport was going to spend ¥66.3bn to buy a 20% stake in the unlisted delivery subsidiary (Sagawa Express) of then still-unlisted SG Holdings (9143 JP), forming a capital and business tie-up looking to merge "within three years" (i.e. merger by 1 April 2019). Hitachi Ltd (6501 JP) was going to sell a 29% stake (out of the 59% they owned) in Hitachi Transport for ¥87.5 billion to SG. They were both going to expand strongly outside of Asia.  HTS was known at the time for its 3PL and "Smart Logistics" capabilities to make customer supply chains more efficient, etc, whereas Sagawa was known as a top last-mile delivery business. The combined entity was set to overtake Yamato Holdings (9064 JP) in terms of revenue and get closer to industry top dog Nippon Express (9062 JP). It was supposed to help SG improve margins by doing more in B2B. 

SG IPOed in late 2017. Three years came and went. Nothing happened. There were a few collaborative projects but it was slow-going, and there were signs of friction. In May 2019 a Medium Term Management Plan (with no mention of SG or Sagawa) was announced, and the Nikkei carried an interview with HTS President Nakatani who said, when asked about the integration..
"I am aware that we are moving toward integration. I would like to harmonize future directions." [Nikkei: He showed a positive attitude...] "We have decided to discuss and consider the possibility of business integration, but we have not made any decisions, including any start to discussions."
On September 25 last year, the Diamond Online let fly a scoop saying the capital and business tie-up between the two was going to be scrapped. HTS shares fell 10+%. 

Hitachi Transport's first release to the exchange said the article wasn't based on information they announced and that it was not going to be a dissolution of the capital tie-up, just a re-arranging of the deckchairs and a board meeting was going on and there would be an announcement within the day. HTS shares - at that point down 7% on the day - bounced sharply (they closed down 4%).
The announcement after the close talked about a "partial modification" of the business and capital tie-up, but it involved HTS selling its 20% stake in Sagawa Express, and buying back 27.675mm of the 32.35mm shares of HTS SG held. It was almost a full unwind. SG managed to sell fewer than 27.675mm shares in the ToSTNeT-3 transaction as others also jumped in to sell. 
My conclusion was to NOT sell that despite the opportunity to be able to do so in size. My conclusion was bullish HTS and basically bearish SG. 
That didn't work so well in the first ten weeks, with the share price ratio falling 20% from 1.252 to 1.00 by 1 December 2020. 
When the TSE announced its new listing criteria for TSE Prime, there was going to be trouble. There had to be 35% of shares "tradable" and by that time, the register looked as follows:
It did not clear the 35%v threshold (it would have been fine but for the large number of public sellers in the 28 September ToSTNeT-3 transaction.) 
By early February 2020, the HTS/SG ratio had reached the ratio of that fateful day announcing the split and by mid-June, the ratio was 26% higher in 9 months. So I am now happier with that call from the past.
On 20 April 2021, SG Holdings announced they had sold 4.6mm shares (at JPY 3,119.5). And on 20 May (the yellow dot on the blue line in the chart above), HTS announced it would cancel 6,975,786 shares (6.2% of shs out) in order to put tradable shares back above 35%. In fact, the sale by SG had done that, and the market did not react. But it was a start, and it kept Hitachi Transport in the TSE Prime section and therefore the TOPIX Index when it launches in April 2022 because tradable shares were back above 35%. 
But there were still a lot of Treasury Shares, which as per the 6 May Results Presentation, included the use of stock (and cash) for alliance and M&amp;A. 
With the shares rallying, on 19 August, the company announced that on 3 September, they would cancel 20,699,214 shares out (19.8% of total shares out), leaving treasury shares of 228,308. That would put Hitachi to just under 40% (where there is no question of consolidation if Hitachi Transport doesn't want), it puts SG Holdings to 9.8% (i.e. still below 10%), and puts the public at greater than 50%. 
The shares reacted well to that too. 
But all this creates a curious problem. 
The float is now 50%, vs 41% pre-selldown, and 33.6% post-dealbreak, and the stock will stay in Prime.
But there is selling to come. 

More below the fold. 




Hitachi Transport Uncoupled - TSE Prime, Price Popping, And Supply To Come

Senior Bank Analyst - Japanese Banks, Windamee Research

J. Brian Waterhouse

Senior Bank Analyst - Japanese Banks

Windamee Research

Japanese Banks

Mizuho Financial Group / Equity Bottom-Up

<p>On Monday 23 August, Mizuho Bank suffered its 6<sup>th</sup> systems failure so far this year.  This time, some 130 of its around 5,300 ATMs stopped working for about an hour just after noon.  This comes in the wake of last Friday’s <em>débâcle</em>, when the bank opened its doors for business at 09:00am but none of the computer terminals at its counters nationwide would function properly.  Are these repeated systems failures simply a hardware problem, a software problem, or is the fundamental problem a more human one?</p>
<p>While management searches for solutions, and the inevitable finger-pointing continues, the bank’s reputation erodes.  The damage to the share price of parent company Mizuho Financial Group (8411 JP) has so far been comparatively light, but for how much longer?  MHFG has markedly underperformed its two megabank rivals <a href="https://www.smartkarma.com/entities/mitsubishi-ufj-financial-group" target="_blank" data-smartkarma-citation="entities:218:1" rel="noopener">Mitsubishi UFJ Financial (MUFG) (8306 JP)</a> and <a href="https://www.smartkarma.com/entities/sumitomo-mitsui-financial-group-inc" target="_blank" data-smartkarma-citation="entities:217:1" rel="noopener">Sumitomo Mitsui Financial Group (8316 JP)</a> so far this year in a rising market, with its stock price up just +6.5% YoY against MUFG’s +34.6% and SMFG’s +21.3%, respectively.  Foreign investors still own in aggregate over 22% of MHFG’s stock, but their patience is being sorely tested.  Further revelations of systems mishaps, or punitive actions by the FSA against MHFG, may well lead to a swift exit by some shareholders; a sell-off cannot be ruled out.</p>
<p><em>Caveat Emptor!</em> (May the Buyer Beware!) remains our advice to would-be investors in this enormous but highly volatile banking group.</p>

On Monday 23 August, Mizuho Bank suffered its 6th systems failure so far this year.  This time, some 130 of its around 5,300 ATMs stopped working for about an hour just after noon.  This comes in the wake of last Friday’s débâcle, when the bank opened its doors for business at 09:00am but none of the computer terminals at its counters nationwide would function properly.  Are these repeated systems failures simply a hardware problem, a software problem, or is the fundamental problem a more human one?
While management searches for solutions, and the inevitable finger-pointing continues, the bank’s reputation erodes.  The damage to the share price of parent company Mizuho Financial Group (8411 JP) has so far been comparatively light, but for how much longer?  MHFG has markedly underperformed its two megabank rivals Mitsubishi UFJ Financial (MUFG) (8306 JP) and Sumitomo Mitsui Financial Group (8316 JP) so far this year in a rising market, with its stock price up just +6.5% YoY against MUFG’s +34.6% and SMFG’s +21.3%, respectively.  Foreign investors still own in aggregate over 22% of MHFG’s stock, but their patience is being sorely tested.  Further revelations of systems mishaps, or punitive actions by the FSA against MHFG, may well lead to a swift exit by some shareholders; a sell-off cannot be ruled out.
Caveat Emptor! (May the Buyer Beware!) remains our advice to would-be investors in this enormous but highly volatile banking group.

Mizuho Financial Group (8411 JP):  Systemic Failures - A Human Factor?

Japan

Hitachi, Ltd. manufactures communications and electronic equipment, heavy electrical and industrial machinery, and consumer electronics.  The Company's diverse product line ranges from nuclear power systems to kitchen appliances. Hitachi also operates subsidiaries in the wire and cable, metal, and chemical industries.

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Hitachi Ltd (6501 JP)

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