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 Capital Markets

<p>On Wed 22 Aug after the close <a href="https://www.smartkarma.com/entities/11796" target="_blank" data-smartkarma-citation="entities:11796:1">Daido Metal (7245 JP)</a> announced a large secondary offering including new and treasury shares. The offering size is large representing 19.4% of shares outstanding (adjusted for treasury stock) and about 82 days ADV. Trouble with falling margins as the company conducted an extremely rapid overseas expansion led to a weakening balance sheet, and as the company continues to invest to try and generate growth drivers to see it past the eventual decline ICE volumes, a capital raise has become necessary.</p><p>We discuss the following below:</p><ul>
<li>Company business model and industry structure</li>
<li>Growth initiatives and the rationale behind them</li>
<li>Recent margin trends and likely trajectory</li>
<li>Valuation</li>
</ul><table class="table table-striped"><tbody>
<tr>
<td>Details</td>
<td></td>
</tr>
<tr>
<td>New Shares</td>
<td style="text-align: right;">1,558,400</td>
</tr>
<tr>
<td>Treasury Shares to be Sold</td>
<td style="text-align: right;">5,141,600</td>
</tr>
<tr>
<td>Overallotment</td>
<td style="text-align: right;">1,005,000</td>
</tr>
<tr>
<td>Total Shares Offered</td>
<td style="text-align: right;">7,705,000</td>
</tr>
<tr>
<td>Existing Shares Excluding Treasury Stock</td>
<td style="text-align: right;">39,815,253</td>
</tr>
<tr>
<td>Final Shares Outstanding</td>
<td style="text-align: right;">47,520,253</td>
</tr>
<tr>
<td>Implied Dilution vs. Existing Shares Excluding Treasury Stock</td>
<td style="text-align: right;">19.4%</td>
</tr>
<tr>
<td></td>
<td style="text-align: right;"></td>
</tr>
<tr>
<td>Pricing Date (X)</td>
<td style="text-align: right;">29 Aug-4 Sep</td>
</tr>
<tr>
<td>Subscription Date</td>
<td style="text-align: right;">X+1 to X+2</td>
</tr>
<tr>
<td>Payment Date</td>
<td style="text-align: right;">X+5</td>
</tr>
<tr>
<td>Delivery Date</td>
<td style="text-align: right;">X+6</td>
</tr>
<tr>
<td></td>
<td style="text-align: right;"></td>
</tr>
<tr>
<td>Discount </td>
<td style="text-align: right;">0-10%</td>
</tr>
<tr>
<td></td>
<td style="text-align: right;"></td>
</tr>
<tr>
<td>Average 30 day ADV</td>
<td style="text-align: right;">94,143</td>
</tr>
<tr>
<td>Days ADV including Overallotment</td>
<td style="text-align: right;">81.8</td>
</tr>
</tbody></table><p></p><table class="table table-striped"><tbody>
<tr>
<td>Use of Funds</td>
<td>JPY m</td>
</tr>
<tr>
<td>Expansion of capacity for automotive bearings</td>
<td style="text-align: right;">1,875</td>
</tr>
<tr>
<td>Installation of production and sales management system</td>
<td style="text-align: right;">932</td>
</tr>
<tr>
<td>Purchase of European automotive engine bearing affiliates stock to turn the company into a subsidiary</td>
<td style="text-align: right;">820</td>
</tr>
<tr>
<td>Investment in aluminium die casts capacity</td>
<td style="text-align: right;">1,634</td>
</tr>
<tr>
<td>Investment in wind turbing bearing factory</td>
<td style="text-align: right;">1,867</td>
</tr>
<tr>
<td>Total</td>
<td style="text-align: right;">7,128</td>
</tr>
<tr>
<td></td>
<td style="text-align: right;"></td>
</tr>
<tr>
<td>Funds raised at 10% discount to Friday's close</td>
<td style="text-align: right;">6,796</td>
</tr>
<tr>
<td>Shortfall</td>
<td style="text-align: right;">332</td>
</tr>
<tr>
<td>Required price for zero shortfall</td>
<td style="text-align: right;">926</td>
</tr>
<tr>
<td>Implied discount for zero shortfall</td>
<td style="text-align: right;">5.7%</td>
</tr>
</tbody></table>

On Wed 22 Aug after the close Daido Metal (7245 JP) announced a large secondary offering including new and treasury shares. The offering size is large representing 19.4% of shares outstanding (adjusted for treasury stock) and about 82 days ADV. Trouble with falling margins as the company conducted an extremely rapid overseas expansion led to a weakening balance sheet, and as the company continues to invest to try and generate growth drivers to see it past the eventual decline ICE volumes, a capital raise has become necessary.We discuss the following below:
Company business model and industry structure
Growth initiatives and the rationale behind them
Recent margin trends and likely trajectory
Valuation


Details



New Shares
1,558,400


Treasury Shares to be Sold
5,141,600


Overallotment
1,005,000


Total Shares Offered
7,705,000


Existing Shares Excluding Treasury Stock
39,815,253


Final Shares Outstanding
47,520,253


Implied Dilution vs. Existing Shares Excluding Treasury Stock
19.4%






Pricing Date (X)
29 Aug-4 Sep


Subscription Date
X+1 to X+2


Payment Date
X+5


Delivery Date
X+6






Discount 
0-10%






Average 30 day ADV
94,143


Days ADV including Overallotment
81.8



Use of Funds
JPY m


Expansion of capacity for automotive bearings
1,875


Installation of production and sales management system
932


Purchase of European automotive engine bearing affiliates stock to turn the company into a subsidiary
820


Investment in aluminium die casts capacity
1,634


Investment in wind turbing bearing factory
1,867


Total
7,128






Funds raised at 10% discount to Friday's close
6,796


Shortfall
332


Required price for zero shortfall
926


Implied discount for zero shortfall
5.7%



Daido Metal: Heavy Investment Burden Prompts Capital Raise but Can the Company Restore Margins?

Japan

TAIHO KOGYO CO., LTD. manufactures metal forgings for automobiles, motorcycles, and industrial machinery.  The Company's products include bearings, metal gaskets, bushings, valves, and actuators.  Taiho Kogyo also produces aluminum die-cast products, plastic products, and solders.  The Company has subsidiaries in the United States and Indonesia.

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Taiho Kogyo Co (6470 JP)

Daido Metal: Heavy Investment Burden Prompts Capital Raise but Can the Company Restore Margins?

On Wed 22 Aug after the close Daido Metal (7245 JP) announced a large secondary offering including new and treasury shares. The offering size is...

Mio Kato

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