Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p><a href="https://www.smartkarma.com/entities/hitachi-ltd" target="_blank" data-smartkarma-citation="entities:7797:1" rel="noopener"><strong>Hitachi Ltd (6501 JP)</strong></a> has, for over a decade, been restructuring itself - selling subsidiaries here and buying them in there. There are two remaining after the recent sale of <strong><a href="https://www.smartkarma.com/entities/hitachi-chemical-co-ltd" target="_blank" data-smartkarma-citation="entities:14457:1" rel="noopener">Hitachi Chemical (4217 JP)</a></strong>, de-consolidation of <strong><a href="https://www.smartkarma.com/entities/hitachi-capital-corp" target="_blank" data-smartkarma-citation="entities:14410:1" rel="noopener">Hitachi Capital (8586 JP)</a></strong>, and buy-in of <strong><a href="https://www.smartkarma.com/entities/hitachi-high-tech-corporation" target="_blank" data-smartkarma-citation="entities:7046:1" rel="noopener">Hitachi High-Tech (8036 JP)</a></strong>. </p><p>The earnings call in May occasioned another presentation - that of the <span>update on </span><a href="http://www.hitachi.com/New/cnews/month/2020/05/200529a.html" target="_blank" rel="noopener">Progress of the Mid-Term Management Plan</a><span> (with a webcast and a </span><a href="http://www.hitachi.com/New/cnews/month/2020/05/200529a/f_200529apre.pdf" target="_blank" rel="noopener">presentation deck</a><span>), where the CEO responded to a question thusly:</span></p><div><blockquote>
<p><strong>QUESTION: </strong> Next question is regarding the, against the backdrop of COVID-19, is this going to have an impact on the reorganisation of the listed subsidiaries?</p>
<p><strong>ANSWER BY CEO HIGASHIHARA:  </strong>Regarding the listed subsidiary answer. <strong>Hitachi Construction Machinery</strong> and <strong>Hitachi Metals</strong> remain. And what we are telling the top management is that, in the time frame of fiscal year 2021 to 2024, we have to make sure these companies are able to compete globally. They are now evaluating this. It is not just a matter of COVID-19. Mid- to long-term growth strategy will be emphasised so the reorganisation strategy for the listed subsidiaries will not be impacted by COVID-19.</p>
</blockquote></div><div>
<p>FY 2021 to FY 2024 is a three year window starting next April, with FY2021 ending in March 2022 and FY2024 ending in March 2025.</p>
<div>
<p>That was May 29, less than five months ago and the situation was discussed in <a href="https://www.smartkarma.com/insights/hitachi-s-capital-case-liquidating-land-policy-holdings-what-about-the-subs" target="_blank" data-smartkarma-citation="insights:39920" rel="noopener">Hitachi's Capital Case - Liquidating Land &amp; Policy Holdings? What About the Subs?</a>.</p>
<p>Friday saw an article out of the Nikkei suggesting <strong>Hitachi</strong> might sell half its stake in <strong><a href="https://www.smartkarma.com/entities/hitachi-construction-machinery" target="_blank" data-smartkarma-citation="entities:19433:1" rel="noopener">Hitachi Construction Machinery (6305 JP)</a></strong> ("HCM") to a third party, at a discount, and that it might start a sale process on <a href="https://www.smartkarma.com/entities/hitachi-metals-ltd" target="_blank" data-smartkarma-citation="entities:8561:1" rel="noopener"><strong>Hitachi Metals (5486 JP</strong>)</a> "this month."</p>
</div>
<div>
<p>It strikes me as unlikely <strong>Hitachi</strong> would <em>themselves</em> be throwing in the towel 5 months later before the start of the time frame in which top management of the two subsidiaries are supposed to be able to compete globally. All of this is likely getting done with the will and direction of the subsidiaries themselves. This strikes me as some kind of agreement with management of <strong>HCM</strong> that they would not be averse to receiving expert help from outside while remaining listed. </p>
<p>This changes things.</p>
<p><strong>Hitachi</strong> becomes a different animal. It becomes a <em>non-stub trade</em> (parent vs significant value of listed short-able subs) for the first time in a very long time. And the optics change quite a bit.</p>
</div>
</div>

Hitachi Ltd (6501 JP) has, for over a decade, been restructuring itself - selling subsidiaries here and buying them in there. There are two remaining after the recent sale of Hitachi Chemical (4217 JP), de-consolidation of Hitachi Capital (8586 JP), and buy-in of Hitachi High-Tech (8036 JP). The earnings call in May occasioned another presentation - that of the update on Progress of the Mid-Term Management Plan (with a webcast and a presentation deck), where the CEO responded to a question thusly:
QUESTION:  Next question is regarding the, against the backdrop of COVID-19, is this going to have an impact on the reorganisation of the listed subsidiaries?
ANSWER BY CEO HIGASHIHARA:  Regarding the listed subsidiary answer. Hitachi Construction Machinery and Hitachi Metals remain. And what we are telling the top management is that, in the time frame of fiscal year 2021 to 2024, we have to make sure these companies are able to compete globally. They are now evaluating this. It is not just a matter of COVID-19. Mid- to long-term growth strategy will be emphasised so the reorganisation strategy for the listed subsidiaries will not be impacted by COVID-19.

FY 2021 to FY 2024 is a three year window starting next April, with FY2021 ending in March 2022 and FY2024 ending in March 2025.

That was May 29, less than five months ago and the situation was discussed in Hitachi's Capital Case - Liquidating Land &amp; Policy Holdings? What About the Subs?.
Friday saw an article out of the Nikkei suggesting Hitachi might sell half its stake in Hitachi Construction Machinery (6305 JP) ("HCM") to a third party, at a discount, and that it might start a sale process on Hitachi Metals (5486 JP) "this month."


It strikes me as unlikely Hitachi would themselves be throwing in the towel 5 months later before the start of the time frame in which top management of the two subsidiaries are supposed to be able to compete globally. All of this is likely getting done with the will and direction of the subsidiaries themselves. This strikes me as some kind of agreement with management of HCM that they would not be averse to receiving expert help from outside while remaining listed. 
This changes things.
Hitachi becomes a different animal. It becomes a non-stub trade (parent vs significant value of listed short-able subs) for the first time in a very long time. And the optics change quite a bit.



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

<p>One of our long-running thematic ideas has been that Japanese corporates are starting to get to grips with improving productivity. This isn’t a universal trend but we had flagged the Toyota group as a bellwether for Japan and that both Toyota and its group companies were demonstrating increasingly flexible and fast decision making capability and less rigid cultural norms. The <a href="https://asia.nikkei.com/Business/Business-trends/Toyota-named-top-ESG-brand-in-Japan-survey2" target="_blank" rel="noopener">Nikkei has an article citing Toyota as the top ESG pick</a> by consumers and business people, and its contents are worth thinking about.</p>

One of our long-running thematic ideas has been that Japanese corporates are starting to get to grips with improving productivity. This isn’t a universal trend but we had flagged the Toyota group as a bellwether for Japan and that both Toyota and its group companies were demonstrating increasingly flexible and fast decision making capability and less rigid cultural norms. The Nikkei has an article citing Toyota as the top ESG pick by consumers and business people, and its contents are worth thinking about.

Toyota – Topping the Nikkei’s ESG Survey and an Indicator of Labour Reform?

David Blennerhassett

Last Week in Event SPACE: Evergrande, Link Admin, NTT Docomo, Melifecare, Wipro, Wilmar, Huya/DouYu

<p>Today after the close, <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> announced the successful completion of the three tender offers for subsidiary/affiliates <a href="https://www.smartkarma.com/entities/keihin-corp" target="_blank" data-smartkarma-citation="entities:15395:1" rel="noopener">Keihin Corp (7251 JP)</a>, <a href="https://www.smartkarma.com/entities/showa-corp" target="_blank" data-smartkarma-citation="entities:15079:1" rel="noopener">Showa Corp (7274 JP)</a>, and <a href="https://www.smartkarma.com/entities/nissin-kogyo-co-ltd" target="_blank" data-smartkarma-citation="entities:20362:1" rel="noopener">Nissin Kogyo (7230 JP)</a>.</p>
<p>The resulting ownership changes are as follows:</p>
<table class="table table-striped">
<tbody>
<tr>
<td colspan="7" style="width: 641.714px;">
<h2>The State of the Honda Sub Residuals</h2>
</td>
<td style="width: 58.8571px;"></td>
</tr>
<tr>
<td style="width: 118.286px;"><strong>Stock</strong></td>
<td style="text-align: center; width: 96px;">
<strong>Announcement <br></strong>(click on the ogre to read the doc)</td>
<td style="text-align: center; width: 61.7143px;"><strong>Tender Doc</strong></td>
<td style="text-align: right; width: 56px;"><strong>TOB Price</strong></td>
<td style="text-align: right; width: 65.7143px;">
<strong>Pre-Tender</strong><br><strong>Ownership</strong>
</td>
<td style="text-align: right; width: 68.5714px;">
<strong>Post-Tender</strong><br><strong>Ownership</strong>
</td>
<td style="text-align: right; width: 52px;"><strong>Fast-Track<br>Delisting</strong></td>
<td style="text-align: right; width: 58.8571px;"><strong>Residual</strong></td>
</tr>
<tr>
<td style="width: 118.286px;">Keihin (7251)</td>
<td style="text-align: center; width: 96px;">
<h3><a href="https://global.honda/content/dam/site/global/investors/cq_img/library/filings/CY2020_20201016_TSEfiling_e_1.pdf" target="_blank" rel="noopener">👹</a></h3>
</td>
<td style="text-align: center; width: 61.7143px;">
<h3><a href="https://www.keihin-corp.co.jp/en/ir/pdf/annualreport/annualreport2018.pdf" target="_blank" rel="noopener">👹</a></h3>
</td>
<td style="text-align: right; width: 56px;">¥2600/shr</td>
<td style="text-align: right; width: 65.7143px;">25.30%</td>
<td style="text-align: right; width: 68.5714px;">93.57%</td>
<td style="text-align: right; width: 52px;">
<p>Yes</p>
</td>
<td style="text-align: right; width: 58.8571px;">¥12.36bn</td>
</tr>
<tr>
<td style="width: 118.286px;">Showa Corp (7274)</td>
<td style="text-align: center; width: 96px;">
<h3><a href="https://global.honda/content/dam/site/global/investors/cq_img/library/filings/CY2020_20201016_TSEfiling_e_2.pdf" target="_blank" rel="noopener">👹</a></h3>
</td>
<td style="text-align: center; width: 61.7143px;">
<h3><a href="https://global.honda/content/dam/site/global/investors/cq_img/library/filings/CY2020_20200901_TSEfiling_e_2.pdf" target="_blank" rel="noopener">👹</a></h3>
</td>
<td style="text-align: right; width: 56px;">¥2300/shr</td>
<td style="text-align: right; width: 65.7143px;">33.14%</td>
<td style="text-align: right; width: 68.5714px;">92.13%</td>
<td style="text-align: right; width: 52px;">Yes</td>
<td style="text-align: right; width: 58.8571px;">¥13.75bn</td>
</tr>
<tr>
<td style="width: 118.286px;">Nissin Kogyo (7230)</td>
<td style="text-align: center; width: 96px;">
<h3><a href="https://global.honda/content/dam/site/global/investors/cq_img/library/filings/CY2020_20201016_TSEfiling_e_3.pdf" target="_blank" rel="noopener">👹</a></h3>
</td>
<td style="text-align: center; width: 61.7143px;">
<h3><a href="https://global.honda/content/dam/site/global/investors/cq_img/library/filings/CY2020_20200901_TSEfiling_e_3.pdf" target="_blank" rel="noopener">👹</a></h3>
</td>
<td style="text-align: right; width: 56px;">¥2250/shr</td>
<td style="text-align: right; width: 65.7143px;">31.61%</td>
<td style="text-align: right; width: 68.5714px;">92.44%</td>
<td style="text-align: right; width: 52px;">Yes</td>
<td style="text-align: right; width: 58.8571px;">¥11.07bn</td>
</tr>
</tbody>
</table>
<p>The results are a little surprising in that all the names managed to get to 92+%. This indicates that some of the passive-tracking TOPIX holders sold into the tender, or their shares were tendered by being borrowed. </p>
<p>This leaves a setup trade.</p>

Today after the close, Honda Motor (7267 JP) announced the successful completion of the three tender offers for subsidiary/affiliates Keihin Corp (7251 JP), Showa Corp (7274 JP), and Nissin Kogyo (7230 JP).
The resulting ownership changes are as follows:




The State of the Honda Sub Residuals




Stock

Announcement  (click on the ogre to read the doc)
Tender Doc
TOB Price

Pre-Tender Ownership


Post-Tender Ownership

Fast-Track Delisting
Residual


Keihin (7251)

👹


👹

¥2600/shr
25.30%
93.57%

Yes

¥12.36bn


Showa Corp (7274)

👹


👹

¥2300/shr
33.14%
92.13%
Yes
¥13.75bn


Nissin Kogyo (7230)

👹


👹

¥2250/shr
31.61%
92.44%
Yes
¥11.07bn



The results are a little surprising in that all the names managed to get to 92+%. This indicates that some of the passive-tracking TOPIX holders sold into the tender, or their shares were tendered by being borrowed. 
This leaves a setup trade.

Honda Tenders Done - Now For The Residuals

<p>We have for over a year discussed China’s transition from a pure BEV strategy for its emissions reduction goals, to a more balanced approach incentivising not just BEVs but also hybrids and FCEVs. Naturally this has the biggest impact on Toyota and this change in the status quo is under-appreciated by the market.</p>

We have for over a year discussed China’s transition from a pure BEV strategy for its emissions reduction goals, to a more balanced approach incentivising not just BEVs but also hybrids and FCEVs. Naturally this has the biggest impact on Toyota and this change in the status quo is under-appreciated by the market.

Toyota – Hybrid Technology Transfer to GAC and China Going Hybrid Mean Share Gains for Toyota

Japan

Honda Motor Co., Ltd. develops, manufactures, and distributes motorcycles, automobiles, and power products such as generators and farm machinery. The Company also operates a financial credit business. Honda Motor has manufacturing facilities in the US, Canada, the UK, France, Italy, Spain, Brazil, Mexico, India, and Thailand.

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Honda Motor (7267 JP)

The Right Trade May Be Hitachi

Hitachi is getting to the end of its Core vs Non-Core restructuring campaign. Two remaining subs have newsflow, and earnings announcements shortly....

Travis Lundy

Toyota – Topping the Nikkei’s ESG Survey and an Indicator of Labour Reform?

Toyota's efforts to reform labour policies bear watching as Japan's change of government and response to COVID's impact on workplaces offer a...

Mio Kato

Last Week in Event SPACE: Evergrande, Link Admin, NTT Docomo, Melifecare, Wipro, Wilmar, Huya/DouYu

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

Honda Tenders Done - Now For The Residuals

Honda secures 92-93% of each of its parts affiliates under Tender Offer. Expect a Delisting end-November or so, and cash payment early-mid Jan2021....

Travis Lundy

Price Gauge

52-week Range

Market Cap (USDm)

P/E

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The Right Trade May Be Hitachi

Hitachi is getting to the end of its Core vs Non-Core restructuring campaign. Two remaining subs have newsflow, and earnings announcements shortly....

Travis Lundy

Toyota – Topping the Nikkei’s ESG Survey and an Indicator of Labour Reform?

Toyota's efforts to reform labour policies bear watching as Japan's change of government and response to COVID's impact on workplaces offer a...

Mio Kato

Last Week in Event SPACE: Evergrande, Link Admin, NTT Docomo, Melifecare, Wipro, Wilmar, Huya/DouYu

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

Honda Tenders Done - Now For The Residuals

Honda secures 92-93% of each of its parts affiliates under Tender Offer. Expect a Delisting end-November or so, and cash payment early-mid Jan2021....

Travis Lundy

Toyota – Hybrid Technology Transfer to GAC and China Going Hybrid Mean Share Gains for Toyota

China's shift to a more hybrid-friendly stance is a leading indicator of where global NEV efforts are likely to go. This is underappreciated by the...

Mio Kato