Japan

• Palliser’s proposal failed to meet the challenging two-thirds threshold at the AGM. Given the ownership landscape, this outcome was anticipated.
• Palliser nearing 50% approval at Keisei’s AGM could signify a triumph, potentially leading to significant pressure on management and a positive shift in share price performance.
• Keisei Electric Railway Co (9009 JP)‘s valuation, now attractively low post a 33% drop and with a potential OP guidance hike, presents minimal downside at a 26.0x EV/OP multiple.

• Nine months have passed since Aisin announced a transformative MTP. Investors remain sceptical that it will deliver higher returns. 
• Improving margins on hybrid transmissions, new products for BEVs and better capital allocation could deliver 70% upside for investors.
• The key risk is the assumption that operating margins can rise above 8% versus the historical average of 5%. 

• Today, Toenec Corp (1946 JP) – an integrated facilities company 50+% owned by Chubu Electric Power Co (9502 JP) announced Chubu EPCO would sell down 7.7% to go to 43%+.
• This is surprising. It suggests there are more selldowns to come. It’s also “big” at 88 days of ADV and about 26% of Max Real World Float (85% retail).
• This is an odd sell-down. Chubu EPCO obviously doesn’t want to buy it in. That means overhang for years.

• JPX-Nikkei 400 is composed of common stocks listed on the Tokyo Stock Exchange. It is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents.
• A periodic review is conducted by the Index provider in August every year. The reference period for the August 2024 index rebal event is now complete.
• In this insight, we take a look at our final expectations for ADDs and DELs.

• Toyo Corporation is a trading company specializing in measurement technologies.
• With several initiatives and strong structural demand in the electric vehicles space in particular, we expect the company to achieve higher revenue and profitability.
• Higher recurring revenue and proprietary product ratios will support a margin improvement in the future. 

• Operating profit for 1Q (Jan-Mar) FY2024/12 was ¥985 mn, already achieving 65.7% of progress in 1Q against the full-year target.
• Reason: a steady growth in programmatic advertising business including the collaboration business with Dentsu and the drastic cost reduction implemented in 2023 helped, while the bottoming out of reservation-based advertising business was not yet recognized in 1Q FY2024/12.
• In addition, the phasing out of the use of third-party Cookies in Google Chrome, which was included in the initial performance plan as a downside risk, has been postponed to 2025 or later. 

• For the month of June 2024, 8 new transactions (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$6bn.
• The average premium for the new transactions announced (or first discussed) in June was ~52%. The average premium YTD is ~47%. 
• This compares to the average premium for transactions in 2023 (117 transactions), 2022 (106), 2021 (165), 2020 (158), and 2019 (145 ) of 39%, 41%, 33%, 31%, and 31% respectively.

• Timee Inc (215A JP) is looking to raise US$290m from its Japan IPO. The IPO will be a 100% secondary selldown by existing shareholders.
• Timee operates an on-demand staffing platform that connects part-time jobseekers with businesses in Japan. 
• In an earlier note, we looked at the firm’s past performance. In this note, we undertake a peer comparison.

• While it’s commendable that more companies are publishing their skills matrices, it’s not enough to verify that the skill items are useful in expanding the value of the company.
• Since management strategies vary from company to company, the skills required to formulate and execute a company’s strategy are not likely to be the same as those of other companies.
• Director candidates should be selected based on the skills needed to expand the value of the company in future and skills that complement the skills lacking in the current directors.

• Aequitas Research’s weekly update on the IPOs, placements, lockup expiry and other ECM linked events that were covered by the team over the past week.
• On the IPO front, we looked at the upcoming mega-listing for Hyundai Motor India.
• On the placement front, the week was dominated by the cross-shareholding unwinds in Aisin (7259 JP) and Mitsui & Co Ltd (8031 JP). 

• No surprise: Keisei Electric Railway (9009 JP) shareholders voted down Palliser’s proposal. If the vote was close, Palliser may ups its rhetorical game, and takes a harder stance.
• Argyle failed to boot one CMCDI (133 HK) director. They’ll next target the management agreement renewal; and agitate the company buy back 20% of shares outstanding at 90% of NAV.
• The Offeror now has 90.16% in Great Eastern Holdings (GE SP) – so this will get suspended at the close of the Offer.

• In FY03/24, revenue was JPY97.0bn (+3.9% YoY), operating profit was JPY1.6bn (+103.5% YoY), recurring profit was JPY2.1bn (+61.6% YoY), and net income attributable to owners of the parent was JPY1.5bn (+19.3% YoY). Information Security earnings expanded due to a recovery in demand for transportation IC cards as inbound demand increased with the end of the COVID-19 pandemic.
• On the other hand, operating loss in Information Communication increased due to lower demand for publication printing.
• Kyodo Printing’s full-year forecast for FY03/25 calls for revenue of JPY104.0bn (+7.2% YoY), operating profit of JPY3.1bn (+96.6% YoY), recurring profit of JPY3.6bn (+72.8% YoY), and net income attributable to owners of the parent of JPY3.3bn (+117.4% YoY).

• The Nikkei 225 Index rallied last week, and closed the week up.
• Although slightly overbought, our models are not pointing to a SHORT opportunity here.
• If the index pulls back this coming week, it may be a good idea to BUY, in order to take advantage of a possible reprise of the rally.

• Today (27 June 2024) after the close, Aisin (7259 JP) announced three Toyota Group companies (Toyota, Toyota Industries, and Denso) would sell shares in Aisin in a ¥180bn offering.
• This is ALL of Denso’s holdings, 63% of Toyota Industries stake, and ~12% of Toyota’s stake. Separately, Aisin announced a 17mm share (6.3%) ¥100bn buyback and a 3:1 split Oct1.
• The recent yuho shows us the progress of Aisin’s promised selldown of crossholdings. There are three large chunks left. One is easy. The climb to capital allocation credibility easier too.

• Denso Corp (6902 JP), Toyota Motor (7203 JP) and Toyota Industries (6201 JP) are looking to raise US$1.1bn from selling some of their stakes in Aisin (7259 JP).
• While the deal appears well-flagged, given that it is part of the cross-shareholding unwind theme in Japan, the timing of such a selldown isn’t always certain.
• In this note, we will talk about the placement and run the deal through our ECM framework.

• Aisin (7259 JP) has announced a secondary offering of up to 38.9 million shares (including overallotment) and a buyback worth a maximum of JPY100 billion or 17 million shares.
• Denso Corp (6902 JP), Toyota Industries (6201 JP), and Toyota Motor (7203 JP) are the selling shareholders. The offering aims to reconfigure the company’s shareholder mix and reduce cross-shareholdings.
• Looking at recent large Japanese placements is instructive for understanding the potential offer price. The pricing date will fall between 8 and 10 July (likely 8 July).

• Timee Inc (215A JP) is looking to raise US$290m from its Japan IPO. The IPO will be a 100% secondary selldown by existing shareholders.
• Timee operates an on-demand staffing platform that connects part-time jobseekers with businesses in Japan.
• In this note, we will talk about the not so positive aspects of the deal.

• The new excitement of the MS&AD story is the company’s commitment to sell down all of its cross-shareholdings and to use proceeds to fund growth and dividends.
• ROE is already far higher now than in recent years, and this can continue with rising dividends.
• Monthly insurance sales figures give a good window on the core business, with growth rates in May YoY and YTD accelerating.

• Japan’s rising defense budget and military collaboration with the US and Europe should support a high level of orders for the foreseeable future.
• Defense is the growth driver, but other divisions should hold up well due to the ongoing rationalization of operations.
• Profits should rebound this year and rise further in FY Mar-26, bringing the P/E down to 9X or less. The weak yen is a large positive. 

• The company’s targets are underwhelming given the opportunity but low expectations built in
• A revamped strategy to increase profitability and shareholder returns is “radical” for this old-school company
• Execution is key for certain parts of the plan, but the market can do the rest

Softbank Group (SBG) has launched a four-part benchmark-sized bond offering comprising USD and EUR notes. The proceeds will mainly be used for debt repayment, including the redemption of foreign currency-denominated bonds, as well as for general corporate purposes, including the maintenance of a cash position for the redemption of outstanding notes due over the next two years along with new investments. In particular, SBG will redeem its USD 766.8 mn 4.75% 2024 bonds (due September) early at par.

• The reversal of foreign and cross-held shares in shareholding ratio is the main catalyst for today’s change. Companies with high foreign ownership gradually accepted the proposals of overseas investors.
• The issues of low profit margins, high policy shareholdings, excess cash on hand, and consequently low ROE are still unresolved in many companies, while some companies did successful through engagement.
• More companies will seek compromise with shareholders by enhancing shareholder returns in the face of the fact that the gap between cost of capital and return on capital wasn’t filled.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• New World Development
• Softbank Group

• Timee Inc (215A JP) is looking to raise US$290m from its Japan IPO. The IPO will be a 100% secondary selldown by existing shareholders.
• Timee operates an on-demand staffing platform that connects part-time jobseekers with businesses in Japan.
• In this note, we will talk about the positive aspects of the deal.

• Two years ago, generic pharmaceuticals co Sawai Group Holdings (4887 JP) traded at 10x PER, 6% ROE, and far below book. 10mos ago the price got back to 1x PBR.
• By then, their US sub had partly been put into “Current Assets AFS” as it was for sale. By Dec23, it was completely there. In Jan, a “business review” announcement.
• The US business sale led to a loss, but growth this year, and a new MTMP in early June. Monday, we got a HUGE buyback announcement. Today, an 8+% pop.

• Otsuka Holdings (4578 JP) announced FDA acceptance of indication expansion filing for Rexulti for the treatment of post-traumatic stress disorder. The FDA action date is February 8, 2025.
• Due to impairment loss associated with termination of a pipeline asset, the company has reduced operating and net profit guidance for 1H24. However, 1H24 revenue guidance has been raised.
• 2028 revenue is expected to reach ¥2.5T, an increase of ¥480B from 2023 results, that too after absorbing the negative impact of ~¥310B for loss of exclusivity of core drugs.

• Revenue: JPY3.9bn (-4.1% YoY); Operating loss: JPY133mn; Recurring loss: JPY39mn; Net loss: JPY759mn.
• Revenue by product type: Adult diaper machinery JPY887mn (-48.8% YoY), Sanitary napkin machinery JPY1.1bn (+82.7% YoY).
• Gross profit margin rose to 18.0% from 12.9%; Net income improved due to JPY534mn gain on sale of securities.

• Cover Corp, a leading talent management company in the rapidly growing VTuber industry.
• They’re considered the most prestigious agency and should attract the best talent.
• Superior Underlying Performance Metrics: Cover boasts superior key performance indicators (KPIs) compared to their main competitor Anycolor, including higher engagement metrics like subscribers, hours watched, and viewership.

• For companies facing challenges in maximizing sustainable shareholder returns, it is not a bad idea to rethink management strategies for corporate value growth in the quiet environment of going private.
• MBOs began to attract attention as managers became more aware of the listing costs. TSE’s request last March was the product of making companies even more aware of the costs.
• It is not easy for a company that has not been recognized in the marketplace for many years to increase its stock valuation in a short period of time.

• Today after the close, Mitsui & Co Ltd (8031 JP) announced that MS&AD Insurance (8725 JP) and Sumitomo Mitsui Financial Group (8316 JP) would sell 14.9mm shares in an offering.
• This will get priced today or tomorrow, sold to institutional investors. This is ¥107bn, 4 days of ADV and 1% of shares out. It is not dilutive. 
• Mitsui & Co has a buyback program with ¥123bn left til end-Sep, when presumably it will reload. Looks easy today, but measuring Mitsui & Co vs Peers is less flattering.

• Trading comfortably through the Partial Offer terms, Sun Corp (6736 JP) may still do nothing with its Cellebrite DI (CLBT US) holding towards narrowing the NAV discount.
• Preceding my comments on Sun Corp are the current setup/unwind tables for Asia-Pacific Holdcos.
• These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

• MS&AD Insurance (8725 JP) and Sumitomo Mitsui Financial Group (8316 JP) are looking to raise US$691m from trimming their respective stakes in Mitsui & Co Ltd (8031 JP).
• While this appears to be another cross-shareholding unwind in Japan, we would argue that the selldown isn’t outright well-flagged given the uncertainty of timing the selldown.
• In this note, we will talk about the placement and run the deal through our ECM framework.

• I kind of hate this, but I also can’t ignore it. Apparently, an expensive media service Reporting on Deals or about the Market for Mergers, had an article today.
• Bloomberg carried a small blurb saying there was “speculation on a tender offer…. according to traders”. The stock is untraded, limit up.  
• The most informative comment comes from Japanese stock market portal ‘kabutan‘ which suggests “overseas media” thinks Sumitomo Corp will sell its shares. I look at the possibilities below.

• Japan Hotel Reit Investment (8985 JP) aims to raise around US$214m to partly fund the acquisition of four hotel assets.
• The company has undertaken a number of deals in the past, most of which have managed to perform well.
• In this note, we will talk about the placement and run the deal through our ECM framework.

• Asics has demonstrated impressive growth in gross profit margins, as evidenced by 4.3ppt YoY improvement in Q1 to 54.5%
• Asics has been successful in growing market share and enhancing its brand strength
• For FY2024, we now forecast a 10% YoY increase in sales to ¥628 billion and a 46% rise in OP to ¥79 billion (prev: ¥ 71b)

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Softbank Group

• While current underlying demand has yet to show signs of a strong recovery, progress has been made in inventory adjustments in the distribution supply chain, and TOREX expects a recovery in sales from the 2H of 2024, and the top priority for this term is strengthening sales expansion initiatives.
• Regarding the initial FY25/3 consolidated OP forecast, in addition to a contribution of ¥1,150mn from the +8.7% YoY increase in net sales, the decrease of ¥2,370mn in inventory write-downs in manufacturing cost of sales will drive a strong recovery in OP.
• Although capex is set to decline -31.9% YoY to ¥3,600mn (mainly for equipment being installed in the new Phenitec Kagoshima Fab clean room), having peaked out last term, depreciation will increase +27.7% YoY to ¥3,000mn as the new clean room has started operations. 

• Nakanishi Inc (7716 JP) guided for 25% revenue growth to ¥74B for 2024, driven by an additional ¥12B revenue contribution from DCI and 6% growth in dental business to ¥47B.
• EBITDA is expected to improve from 2025 due to normalization of the personnel expenses and depreciation. 2026 EBITDA margin (26.8%) will improve significantly over 2024 (23.9%).
• Amid slow global consumption, Nakanishi’s cost-effective products offer strong value proposition. The company is expected to meet 2024 guidance and no negative surprise (downward revision in last year) is expected.

• Q1-3 FY7/24 results were in line with unchanged guidance. Gross margin increased from 22.9% to 24.0% YoY, a positive development as the company selectively raised consultant prices.
• With the scope for further increases, we believe the company can achieve sustainable double-digit sales growth in the medium term.
• Profitability is also set to improve via pricing as well as 1) scaling the newly-established strategic consulting subsidiary with high gross margins and 2) improving the sales mix by growing direct business with customers, as opposed to solely acting as freelancers and providing staff from business partners. 

• Many Japanese managers have little idea that what belongs to shareholders is net profit and not free cash flow. This has created two problems.
• If Japanese companies, mostly manufacturers, use dividend payout ratios as a criterion for shareholder returns, cash on hand will not decline even if shareholder returns are increased to some extent.
• The inability to move beyond the concept of allocating investment and shareholder returns based on increases or decreases in cash may be the reason for the unclear cash allocation policy.

• I tally 48  – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• Two new deals discussed this week: the Capitol Health (CAJ AU) / Integral Diagnostics (IDX AU) merger; and Infocom Corp (4348 JP)‘s Tender Offer.
• Key updates took place on: MMA Offshore (MRM AU), L’Occitane (973 HK), Mimasu Semiconductor Industry (8155 JP), Tatsuta Electric Wire & Cable (5809 JP), and Great Eastern Holdings (GE SP).

• Murakami Group now owns 10.13% of Exedy Corp (7278 JP). Interestingly, NOMURA Aya sold 6.79% off-market to Minami Aoyama Fudosan. Has the Murakami Group made a “mistake” in its planning?
• A big win for EOFlow (294090 KS) as the U.S. Federal Appeals Court issued its decision on overturning Insulet Corp (PODD US)‘s provisional injunction
• L’Occitane (973 HK) finally announces the share alternative.  And  Pleasant Lake (3.25% of shares out) will accept the share offer (either cash or scrip). This is a done deal