Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>Nippon Express is turning itself into a holding company at the beginning of 2022.</li>
<li>This basically means nothing to most people. The ticker will change from 9062 JP to 9147 JP and Nippon Express will become Nippon Express Holdings. </li>
<li>But the Nikkei Index team, harkening back to the way Japanese indices treated such holdco formations in the early noughties, has seen fit to kick it out for a day.</li>
</ul>


Nippon Express is turning itself into a holding company at the beginning of 2022.
This basically means nothing to most people. The ticker will change from 9062 JP to 9147 JP and Nippon Express will become Nippon Express Holdings. 
But the Nikkei Index team, harkening back to the way Japanese indices treated such holdco formations in the early noughties, has seen fit to kick it out for a day.


The "One-Day" Nikkei 225 Deletion of Nippon Express (9062 JP)

<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

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

<p>Our bullish outlook remains intact and is supported by the absence of breakdowns across major global indexes (MSCI ACWI, ACWI ex-US, EM, and EAFE) and ongoing positive market dynamics. Until this changes, we believe global equities are headed higher in the coming weeks and months.</p>

Our bullish outlook remains intact and is supported by the absence of breakdowns across major global indexes (MSCI ACWI, ACWI ex-US, EM, and EAFE) and ongoing positive market dynamics. Until this changes, we believe global equities are headed higher in the coming weeks and months.

Global Equity Strategy: Stick With Reflation & Reopening Theme

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

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.

Thematic (Sector/Industry)

<p style="text-align: center;"><strong>• MARKET UPDATE •</strong></p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/185/821/original/2021-01-28_05-31-21.png?1612123987" class="editor-image img-responsive" data-smartkarma-image-id="185821"></figure></section><p><strong>PEAKY</strong> - Thursday's Vale Traded ratio was the highest year-to-date and the third-highest since the COVID-low of 13th March 2020. Down Volume reached 'Panic' levels and was the third-highest in six years. On the previous two 'Panic' days in 2020, this proved to be a buying opportunity. We are less sure this will be this case in 2021.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/185/822/original/2021-02-01_05-17-55.png?1612124290" class="editor-image img-responsive" data-smartkarma-image-id="185822"></figure></section><p><strong>BOJ 'TAPERS'</strong> - The Bank of Japan, naturally intervened by purchasing ETFs but did not, however, raise its recently-reduced buying amount. The central bank also failed to intervene again on Friday, despite the sharp fall in the major indices. As a percentage of Value Traded, Thursday's intervention was the smallest in six years. With long-bond yields rising to a two-year high of 0.5%, perhaps their attention has been diverted elsewhere?</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/185/824/original/2021-01-30_14-31-02.png?1612124614" class="editor-image img-responsive" data-smartkarma-image-id="185824"></figure></section><p><strong>50-DAY MOVING AVERAGE CROSSOVER?</strong> - As a result of Friday's decline, Total Market Value is poised to crossover the 59-Day Moving Average for the first time since 12th October - a further test of this bull market's resolve. As noted last week, 50/200-day moving average 'gaps' of over 60 are rare and normally occur at significant market tops.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/185/827/original/2021-01-30_14-45-46.png?1612124854" class="editor-image img-responsive" data-smartkarma-image-id="185827"></figure></section><p><strong>RESULTS SEASON BEGINS</strong> - Since 15th January, 644 companies have reposted quarterly results. Although, as will be covered in the DETAIL section below, earnings momentum is improving. The aggregate net income forecast is above trailing net income, trailing aggregate operating, and net profit are both still declining.  Trailing and forward earnings multiples are still over 30 times, despite the 3.5% decline from the TOPIX peak on 14th January.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/185/831/original/2021-01-31_17-16-42.png?1612125298" class="editor-image img-responsive" data-smartkarma-image-id="185831"></figure><hr></section><p style="text-align: center;"><strong>• RESULTS SUMMARY - 29th JANUARY •</strong></p><p style="text-align: left;">Of Fridays' 399 results announcements, 71% scored positively for earnings momentum despite trailing revenues falling by 5.3% on average and a 1.7 point decline in operating margins - we are now well past the cycle low point for earnings. Only 11% of companies were in the red for the quarter.  The percentages for forecasts are less optimistic. Only 59% of forecasts and revisions scored positively, although the average score was +2.4 points.  Many large consumer-orientated businesses have yet to see a resumption of pre-COVID levels of activity.</p><p style="text-align: center;"><strong>• BEST &amp; WORST •</strong></p><p style="text-align: left;">Our<strong> Best</strong> and <strong>Worst</strong> selection from Friday's announcements is the Diversified Freight Services Peer Group (which includes <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>, <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>, and <a href="https://www.smartkarma.com/entities/sg-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:26070:1" rel="noopener">SG (9143 JP)</a>) and <a href="https://www.smartkarma.com/entities/daiichi-sankyo-co-ltd" target="_blank" data-smartkarma-citation="entities:3014:1" rel="noopener">Daiichi Sankyo (4568 JP)</a>. </p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/185/843/original/2021-02-01_06-46-24.png?1612129615" class="editor-image img-responsive" data-smartkarma-image-id="185843"></figure></section><section class="figure"><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/185/846/original/2021-02-01_06-49-21.png?1612129775" class="editor-image img-responsive" data-smartkarma-image-id="185846"></figure></section><p></p></section>

• MARKET UPDATE •PEAKY - Thursday's Vale Traded ratio was the highest year-to-date and the third-highest since the COVID-low of 13th March 2020. Down Volume reached 'Panic' levels and was the third-highest in six years. On the previous two 'Panic' days in 2020, this proved to be a buying opportunity. We are less sure this will be this case in 2021.BOJ 'TAPERS' - The Bank of Japan, naturally intervened by purchasing ETFs but did not, however, raise its recently-reduced buying amount. The central bank also failed to intervene again on Friday, despite the sharp fall in the major indices. As a percentage of Value Traded, Thursday's intervention was the smallest in six years. With long-bond yields rising to a two-year high of 0.5%, perhaps their attention has been diverted elsewhere?50-DAY MOVING AVERAGE CROSSOVER? - As a result of Friday's decline, Total Market Value is poised to crossover the 59-Day Moving Average for the first time since 12th October - a further test of this bull market's resolve. As noted last week, 50/200-day moving average 'gaps' of over 60 are rare and normally occur at significant market tops.RESULTS SEASON BEGINS - Since 15th January, 644 companies have reposted quarterly results. Although, as will be covered in the DETAIL section below, earnings momentum is improving. The aggregate net income forecast is above trailing net income, trailing aggregate operating, and net profit are both still declining.  Trailing and forward earnings multiples are still over 30 times, despite the 3.5% decline from the TOPIX peak on 14th January.• RESULTS SUMMARY - 29th JANUARY •Of Fridays' 399 results announcements, 71% scored positively for earnings momentum despite trailing revenues falling by 5.3% on average and a 1.7 point decline in operating margins - we are now well past the cycle low point for earnings. Only 11% of companies were in the red for the quarter.  The percentages for forecasts are less optimistic. Only 59% of forecasts and revisions scored positively, although the average score was +2.4 points.  Many large consumer-orientated businesses have yet to see a resumption of pre-COVID levels of activity.• BEST &amp; WORST •Our Best and Worst selection from Friday's announcements is the Diversified Freight Services Peer Group (which includes Yamato Holdings (9064 JP), Nippon Express (9062 JP), and SG (9143 JP)) and Daiichi Sankyo (4568 JP). 

🇯🇵 JAPAN • Market + Results & Revisions Update 01/29

<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> that Hitachi Transport and SG subsidiary, and well-known door-to-door delivery unit Sagawa Express would form a capital and business tie-up and would look to merge <em>"within three years"</em> (i.e. merger by 1 April 2019). </p><p>The deal was that Hitachi Transport was going to spend ¥66.3bn to buy a 20% stake in the unlisted <em>delivery</em> subsidiary of then still-unlisted SG Holdings, and <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. 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><p>SG IPOed in late 2017. Three years came and went. Nothing happened. There were collaborative projects started such as a "Japan-China integrated service" and "mutual utilisation of logistics facilities" such as e-commerce delivery hubs, but it was slow-going.</p><p>Some signs of discord have been clear for a while. If one reads between the lines one could have wondered what the point was even in 2016, but I expect there was hope that the two sides could get along. </p><p>In late May 2019 after the earnings presentation which marked the three year anniversary/deadline of a deal, and a new <a href="https://www.hitachi-transportsystem.com/en/ir/library/presentations/pdf/midtermmanagementplan_190524enR.pdf" target="_blank" rel="noopener">Mid-Term Management Plan</a> "Logisteed 2021" in which the forward-looking part had basically no mention of SG or Sagawa, the Nikkei carried an interview with HTS President Nakatani who said, when asked about the integration, <em>"I am aware that we are moving toward integration. I would like to harmonize future directions." </em>[Nikkei: He showed a positive attitude...]<em> "We have decided to discuss and consider the possibility of business integration, but we have not made any decisions, including any start to discussions."</em></p><p>Three years on and there had obviously been discussions about discussions, but the two sides hadn't made any commitment to starting discussions officially. </p><h2>The NEW News</h2><p>Today mid-day, Diamond Online released a scoop saying the capital and business tie-up between the two was going to be scrapped. </p><p>The first reaction was to send Hitachi Transport shares down 10+%. </p><p>Hitachi Transport's first release to the exchange said that 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 - which at that point were down 7% on the day - bounced sharply. </p><p>After the close it became clear there was a difference of opinion on what the "review of the level equity affiliation" actually meant. </p><p>The headline of the Hitachi Transport release says "Announcement of Partial Modification of the Strategic Capital and Business Alliance with SG Holdings and SAGAWA EXPRESS". It talks at some length about what has been accomplished in four and a half years of working together and then it notes the "modification of the capital tie-up."</p><ol>
<li>HTS will sell the 20% of Sagawa Express that it owns for ¥87.5bn. That trade will be executed on 29 Sep 2020. </li>
<li>HTS will buy back "a portion" of the shares that SG owns in a <a href="https://www.hitachi-transportsystem.com/jp/news/pdf/20200924_jikokabusikinoshutokukaituke.pdf" target="_blank" rel="noopener">ToSTNeT-3 transaction</a> the morning of 25 September. Reminder that SG owns 32.35mm shares of HTS or 29.00% of shares out. Tomorrow morning, HTS will buy back 27.675mm shares at the closing price on the 24 September of ¥3,570. That is up to 24.8% of shares out. </li>
</ol><p> That is a very big unwind in a very big hurry. </p><p>This creates some interesting side effects and they are well-worth thinking about. </p><p>More below the fold.</p>

At the end of March 2016, Hitachi Ltd (6501 JP),  Hitachi Transport System (9086 JP), and as-yet unlisted SG Holdings (9143 JP)announced that Hitachi Transport and SG subsidiary, and well-known door-to-door delivery unit Sagawa Express would form a capital and business tie-up and would look to merge "within three years" (i.e. merger by 1 April 2019). The deal was that Hitachi Transport was going to spend ¥66.3bn to buy a 20% stake in the unlisted delivery subsidiary of then still-unlisted SG Holdings, and Hitachi Ltd (6501 JP) was going to sell a 29% stake (out of the 59% they owned) in Hitachi Transport for ¥87.5 billion. 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 collaborative projects started such as a "Japan-China integrated service" and "mutual utilisation of logistics facilities" such as e-commerce delivery hubs, but it was slow-going.Some signs of discord have been clear for a while. If one reads between the lines one could have wondered what the point was even in 2016, but I expect there was hope that the two sides could get along. In late May 2019 after the earnings presentation which marked the three year anniversary/deadline of a deal, and a new Mid-Term Management Plan "Logisteed 2021" in which the forward-looking part had basically no mention of SG or Sagawa, 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."Three years on and there had obviously been discussions about discussions, but the two sides hadn't made any commitment to starting discussions officially. The NEW NewsToday mid-day, Diamond Online released a scoop saying the capital and business tie-up between the two was going to be scrapped. The first reaction was to send Hitachi Transport shares down 10+%. Hitachi Transport's first release to the exchange said that 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 - which at that point were down 7% on the day - bounced sharply. After the close it became clear there was a difference of opinion on what the "review of the level equity affiliation" actually meant. The headline of the Hitachi Transport release says "Announcement of Partial Modification of the Strategic Capital and Business Alliance with SG Holdings and SAGAWA EXPRESS". It talks at some length about what has been accomplished in four and a half years of working together and then it notes the "modification of the capital tie-up."
HTS will sell the 20% of Sagawa Express that it owns for ¥87.5bn. That trade will be executed on 29 Sep 2020. 
HTS will buy back "a portion" of the shares that SG owns in a ToSTNeT-3 transaction the morning of 25 September. Reminder that SG owns 32.35mm shares of HTS or 29.00% of shares out. Tomorrow morning, HTS will buy back 27.675mm shares at the closing price on the 24 September of ¥3,570. That is up to 24.8% of shares out. 
 That is a very big unwind in a very big hurry. This creates some interesting side effects and they are well-worth thinking about. More below the fold.

Hitachi Transport & SG Holdings:  Consciously Uncoupling

Japan

Nippon Express Holdings, Inc. offers logistics services. The Company provides freight vehicle transportation, railway transportation, air transportation, sea transportation, port transportation, warehousing, and other services. Nippon Express Holdings provides its services throughout Japan.

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Nippon Express Holdings (9147 JP)

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🇯🇵 JAPAN • Market + Results & Revisions Update 01/29

Thursday's Vale Traded ratio was the highest year-to-date and the third-highest since the COVID-low of 13th March 2020. Down Volume reached 'Panic'...

Campbell Gunn

Hitachi Transport & SG Holdings: Consciously Uncoupling

In May of 2016

Travis Lundy

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