Japan

• Heiwa Corp (6412 JP) got 99% of its revenue as a pachinko/pachislot machinery maker. In 2011, it bought one of Japan’s largest golf course operators, PGM Holdings, from Lone Star. 
• Golf course revenue is up 30% in 10yrs. Pachinko/Pachislot revenue is down by 60+% in the same period. Golf is the bulk of revenue and OP now.
• Today, the company announced a stunning, even monumental acquisition to become the largest golf course operator in the world. 

• CAUTIOUS VIEW ON THE EV MARKET CONTINUES BUT THE FIRM COMMITS TO MID-TERM SHAREHOLDERS RETURN POLICY.
• Hirano Tecseed maintained FY24 full-year guidance despite shortfall in FY24 1H operating profit vs the firm’s forecast.

• Today post-close, activist/engagement investor Oasis Management filed a new LSR on Macromill, Inc (3978 JP) owning 7.12% of shares as of 13-Dec-2024. Reason: Defend shareholder value, propose measures to management.
• That is 7.56-7.65% of effective voting/tender rights. It’s big enough to matter. Of course, the stock has not traded below terms once since full trading started post-announcement. 
• And this was warned in CVC Offers ¥1150 for Macromill (3978) – Wrong Price, Wrong Register – Expect Activism or An Overbid. Shareholder structure REALLY matters. 

• Today, Shin Etsu Chemical (4063 JP) announced a second buyback this year (first ¥100bn was announced in May, buying back 16.695mm shs (0.83%). This time, ~¥94bn via Own-Share Tender Offer.
• Three non-life insurers and two banks who together hold 6+% will sell a total of ~1.01% at ~10% below last. They will then sell the rest of their shares later.
• Cute, but not enough. Shin-Etsu is cash-rich, securities-rich, receivables and inventory-rich. And nearly ¥1trln of EBITDA. They are a key part of the tech infrastructure. They can borrow.

• The disparity between the leading footwear retailers continues to widen.
• ABC Mart is pulling so far ahead that it has the market almost to itself. 
• Chiyoda may have finally turned the corner but G-Foot may need further financial support from Aeon.

• Shareholder activism approaches include those seeking to resolve balance sheet issues, those targeting governance practices, those seeking to restructure business portfolios, and those seeking to improve business profitability.
• In approaches that call for business strategy reform, shareholders may require the company to establish a special committee, including outside directors and outside experts, to discuss solutions to issues.
• The discussions of “Strategy Committee” can significantly alter the shape of a company. Since few managers manage to evolve with changes in business environment, shareholder activism plays a significant role.

• A bid for out-of-the-money puts combined with positive change in Put open interest and Put volume totals argues that Puts and being bought.
• 70% of NKY open interest is below 38,000 with only 20% of the open interest above 40,000.
• NKY nearing top of range while registering quiet historic volatility levels 4-5 points below implied vols. 

• Exhibiting a robust growth profile – Solid topline growth and a marked improvement in profitability YoY were the key highlights of Q1 FY7/24 results, demonstrating that INTLOOP’s growth strategy encompassing M&A and business investment is beginning to yield positive outcomes.
• Sales growth of 63.3% YoY was driven primarily by the acquisitive impact of DICS Holdings, and margin enhancement YoY was said to be driven by obtaining high-margin projects, which we believe also stems from raised pricing and improving consultant productivity.
• Management continues to invest in the business primarily via recruitment and building business alliances that should strengthen its network and selling activities.

• There’s been something of a reversal of fortunes in online shopping malls, as Yahoo Shopping regains some of the losses of the past 18 months while Rakuten suffers a setback.
• Much of Yahoo Shopping’s bounce back has come on the back of marketing through loyalty point programmes.
• Both companies expect further gains going forward from more cross-use and expansion of categories, including a new tie-up between Rakuten and Nihon L’Oreal.

• Kioxia Holdings (285A JP) raised around US$800m (including over-allocation) in its Japan IPO, after pricing its IPO in the middle of its range.
• It was the world’s largest pure-play NAND flash memory supplier, in terms of both revenue and unit shipments in 2023, according to TechInsights.
• We have looked at the company’s past performance and valuations in our previous notes. In this note, we will talk about the trading dynamics.

• In cumulative Q3 FY01/25, SanBio reported no operating revenue, with an operating loss of JPY2.5bn, narrowing YoY.
• Non-operating income was JPY504mn, primarily from foreign-exchange gains; recurring loss was JPY2.0bn, increasing YoY.
• Net loss attributable to owners was JPY2.2bn; deferred tax liabilities and extraordinary gains impacted financial results.

• In today’s Morning Views publication we comment on developments of the following high yield issuers: Softbank Group
• On Friday, US Treasuries concluded the week with another sell-off, marking the worst week in months. US equities were flat.
• In the US, the import price index unexpectedly rose 0.1% m-o-m in November (-0.2% e / +0.1% p).

• Shipping the first water-based cooling systems for servers equipped with Nvidia’s new Blackwell GPUs and building two new motor factories in India.
• Moving beyond excessive dependence on China while restructuring operations to reduce costs. Sales short of 1H guidnce, but operating profit up. 
• Share price down 30% since May and close to its 52-week low. Selling at 17.5x this fiscal year’s EPS guidance, the lowest P/E multiple in a decade. 

• In 1H FY04/25, revenue, operating profit, and net income declined YoY, while recurring profit increased 2.1% YoY.
• Excluding fiscal year-end changes, 1H FY04/25 revenue and operating profit grew 8.0% and 15.5% YoY, respectively.
• Revenue and operating profit for 5G Homestyle services increased 5.8% and 25.7% YoY, excluding fiscal year-end impact.

• Repurchasing investment units, increasing dividends through property sales, and increasing EPS through negative goodwill of M&A seem to be the share price raising measures necessary for capital increase for growth.
• When increasing capital amid stagnated REIT stock prices, it’s questionable whether the picture that is drawn after capital increase is reasonable in the face of rising required returns by investors.
• When the profitability of REIT investment companies is in question, it is not surprising that activist investors will focus on management issues, including cost of capital or corporate governance.

• Nec Networks (1973 JP)‘s own FA didn’t include any measure of transaction synergies to be created about which NEC and NESIC were so sure. This is not being done right.
• Singapore Post (SPOST SP)‘s muted price action after announcing the ~S$900mn FMH sale is illustrative. But expect more value to be unlocked from divesting non-core ops going forward. 
• The FTC’ blocking the giant grocery merger of Kroger Co (KR US) and Albertsons Cos (ACI US) spells trouble for ACT and Seven & I Holdings (3382 JP).

• I tally 51 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• Five new deals this week: Insignia Financial (IFL AU), Fosun Tourism (1992 HK), and Lifestyle China (2136 HK). VCredit Holdings (2003 HK) and Vesync (2148 HK) also in the crosshairs. 
• Key updates/news took place on: Guotai Junan Securities (2611 HK)/Haitong Securities Co Ltd (H) (6837 HK), Fuji Soft Inc (9749 JP), CPMC Holdings (906 HK), and Dexus Property (DXS AU) 

• Exedy Corp (7278 JP) announced an offering of 36% of its shares at end-May. Long-time “owner” Aisin (7259 JP) was getting out. Since then, the company has bought back shares.
• Activist Murakami Group has bought 27% of the company. Between Murakami and the buyback, the public has net sold 5% of the company since end-March. Kinda shocking.
• There is another 35% of Max Real World Float to buy back, and at current pace, they’ll be done by mid-March 2025. Then what? That’s the really big question.

• ~4 weeks ago, Fuji Soft Inc (9749 JP) responded to Bain’s Proposal to take over the company but got KKR to bid ¥1 more, then said that covered it.
• The Special Committee then asked the FSI Board to halt further negotiations with Bain, and to ask Bain to destroy all confidential documentation. 
• Bain rejected saying it contravened METI Guidelines on Corporate Takeovers and reappeared 2 days ago with a ¥9,600 bid. The structure/details of Bain’s bid was probably a strategy mistake.

• We update our views on ten Japanese midcap banks targeting attractively valued beneficiaries of the realization of big strategic shareholdings, as well as beneficiaries of the improving interest rate outlook
• We re-iterate our buys on Hachijuni Bank and Hokuhoku Financial; there is potential to realize their large strategic holdings relative to their market capitalizations combined with their attractive PTBV ratios
• We take Gunma Bank off the buy list, replacing it with Iyogin; Iyogin has a constructive mix of large strategic holdings, attractive valuations and healthy gearing to higher interest rates

• Operating revenue increased by 78.3% YoY to JPY3.3bn, driven by sales of TDM-621 across multiple regions.
• Operating loss narrowed to JPY532mn, with a recurring loss of JPY798mn and a net loss of JPY806mn.
• US sales grew 151.4% YoY, achieving profitability; Europe and Japan also reported significant YoY sales growth.

• From FY3/2027, companies with market capitalization of over 3 trillion yen will be required to disclose GHG sequentially. 76% of companies with market capitalization of over 500 billion yen disclose.
• A guarantee program is scheduled to be introduced in FY3/2028, but only 21% of companies with market capitalization of over 500 billion yen have disclosed their guarantees.
• The guarantee program will begin in Scope 1 and 2 with limited guarantees. Disclosure of guarantees will increase once the discussion on qualification system for guarantee service providers is finalized.

• Revenue for FY10/24 was JPY4.4bn, a 3.4% YoY decrease, with operating profit down 89.4% YoY to JPY129mn.
• FY10/25 forecasts include revenue of JPY4.5bn (+3.4% YoY) and operating profit of JPY370mn (+186.5% YoY).
• Contract processing services revenue declined 12.8% YoY in FY10/24, with orders decreasing by 13.9% YoY.

• In Q1 FY07/25, the company reported sales of JPY11.5bn and business profit of JPY1.2bn, showing YoY growth.
• Logistics Investment business saw increased leasing income, with sales of JPY5.9bn and segment profit of JPY820mn, up 70.5% YoY.
• The company sold LogiSquare Narita, resulting in sales of JPY4.5bn and segment profit of JPY583mn, reversing previous losses.

• Paper manufacturer Oji Holdings (3861 JP) has spent 25 years not going anywhere. Their current MTMP isn’t exciting. And it looks like they will fail worse than last time.
• But an activist put their head above the parapet recently, and now the company has announced larger new cross-holding selldown targets, and a big 9% buyback, with a ToSTNeT-3 tomorrow. 
• The stock is at 0.47x book. They have nearly ¥400bn of financial assets which are non-core. They have land and property holdings. And they have lots of cross-holdings to repurchase.

• Yesterday, NEC Corp (6701 JP) extended its Tender Offer to buy controlled subsidiary Nec Networks & System Integr (1973 JP) for another 10 days. It did not have enough shares.
• As discussed here 4wks ago, then here yesterday, NEC might not get enough shares unless it offers a higher price. There’s a reason. It is not a high enough price. 
• METI Fair M&A Guidelines and Guidelines for Corporate Takeovers define fair. Guarantees of a floor price and a fair allocation of synergies. One is questionable. The other is not there.

• FY10/24 revenue reached JPY189.9bn (+29.5% YoY), with business profit at JPY4.1bn (+86.6% YoY), exceeding forecasts.
• RENOSY Marketplace expanded market share, becoming top in pre-owned condominium investments for five consecutive years.
• ITANDI business saw increased ARR, customer numbers, and product adoption, aided by M&A activities in 2024.

• Revenue increased to JPY17.7bn (+5.2% YoY) due to subscriber growth in D2C and BPO services expansion.
• Extraordinary losses included JPY829mn in impairment losses and JPY140mn for financial statement correction costs.
• FY05/25 forecast: Revenue JPY21.0bn (+18.5% YoY), EBITDA JPY500mn, net loss JPY490mn to JPY290mn.

• Two days before the close of its TOB on subsidiary Nec Networks & System Integr (1973 JP), NEC Corp (6701 JP) announced it had no plans to raise the price. 
• The next day, the second largest shareholder reported a stake increase from 11.68% to 13.12%. That changes the dynamic further, and a change in terms was likely. 
• Today post-close, NEC extended the Tender Offer by 10 days. It is worthwhile understanding the likely current disposition of shares. 

• Recent reports suggest an MBO if firming up, with partial sale of US to ACT and even the Japan CVS business so a big value solution for all concerned.
• Not so fast: an ACT purchase of 7-11 US looks more likely to be blocked given yesterday’s ruling on the merger of grocery giants Kroger and Albertsons.
• The valuation of the Japan business may need a correction too if the last six months of poor numbers continue – given this is because of price perception, they may.

• Topcon Corp (7732 JP) shares rose 51% over two days, confirming a Bloomberg report that is conducting a privatisation auction. The process is in the second round of bids.
• Exploring the privatisation process is unsurprising, as Topcon has materially underperformed the Nikkei 225 since its last medium-term management term plan was announced on 12 May 2023.
• Despite the share price pop, Topcon trades at a discount to median peer multiples. At an offer of JPY3,000, Topcon would trade in line with median peer multiples.

• The battle for Fuji Soft Inc. (9749 JP) took an unexpected turn. Bain revised its offer to JPY9,600, a 1.6% premium to KKR’s JPY9,451 second tender offer. 
• Bain has introduced a minimum number of shares to be purchased criterion. Bain’s offer is structured to address most but not all of the special committee’s reasons for opposition.
• The Board’s first reaction will be to ask KKR, its preferred bidder, to bump. Given the amount of time and effort KKR has put into this bid, it will bump. 

• Inditex’s rare quarterly miss on sales and profit, driven by currency fluctuations, may heighten sensitivity around Fast Retailing’s upcoming Q1 results
• For Fast, the risk would be a top-line miss given high valuation multiples and elevated expectations
• Over the past several quarters, Fast’s superior top line growth has supported higher valuation multiples. We expect 9% revenue growth in Q1

• One year has passed since the disclosure of sustainability information in annual securities reports, and the FSA is considering restructuring its disclosure guidelines to support sustainability disclosure by listed companies.
• Sustainability information in annual securities reports is shifting from “what should be stated” to “what content should be stated,” and the volume of information is increasing accordingly.
• Valuable information is that investors can understand what initiatives the company has implemented to address the challenges, the goals and timelines it has set, and whether its progress is justified.

• Raksul operates niche B2B online marketplaces in Japan with exceptional shareholder alignment
• Recent dip in stock value due to market trends, but shows promise for 2-4x returns in next two years
• Unique approach to collecting tolls on indirect costs for SMEs in Japan sets them apart in the industry

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

• Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
• Note: Gross profit adjusted for sales returns.
• Note: Net income refers to net income attributable to owners of the parent.

• GiG Works reported FY10/24 revenue of JPY25.4bn, a 4.0% YoY decline, with all profit categories posting losses.
• The Sharing Economy business achieved YoY revenue and profit growth, while other segments experienced declines and operating losses.
• FY10/25 forecasts include JPY24.9bn revenue, JPY180mn operating profit, and a JPY2 per share annual dividend.

• As outlined in its initial forecasts from May 2024, Gurunavi (hereafter, the Company) projected an operating loss of JPY 330 mn and a net loss of JPY 350 mn for the first half of FY2025/3.
• The Company anticipated a recovery in the second half to achieve full-year operating profit of JPY 150 mn and net profit of JPY 110 mn.
• However, following an upward revision announced with Q1 results, the Company reported an operating profit of JPY 278 mn and a net profit of JPY 247 mn for the first half, successfully achieving profitability during the period.

• A Bloomberg article today said Topcon Corp (7732 JP) is weighing takeover bids received from KKR and EQT. ValueAct has been pressuring the company for 18mos (5+% in May23)
• ValueAct has apparently been pushing the company to divest assets and concentrate on core ops, or go private (and have someone else do it). 
• This is further evidence of the METI-enabled “Bad Cop-Good Cop Routine” which could expand M&A and governance activity dramatically. 

• Quiddity’s “Who is Ready” series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.
• Reently-Listed Tokyo Metro (9023 JP), Rigaku Holdings (268A JP), and Intermestic (262A JP) were added to the TOPIX index at the end of November 2024.
• Our long-term pre-event candidate Japan Eyewear Holdings (5889 JP) has applied for a Section Transfer to the Prime Market which means there could be TOPIX Inclusion in the near future.

• The Nikkei 225 Index continues its going nowhere trend: there is a pattern however in what it does and it’s quite repetitive as of lately.
• While we don’t attribute predictive value to chart patterns, we do know that a flat trend sooner or later breaks out.
• Our models see limited upside for the current range-bound mini rally (2 weeks in the making). Next we will have a pullback, and it could happen already after this week.

• Revenue grew 10.8% YoY to JPY37.3bn, driven by Overseas Solutions order growth and yen depreciation impact.
• Operating profit decreased 9.7% YoY to JPY634mn due to business liquidation expenses and additional game co-development costs.
• Revenue from animation production increased YoY, but Media Contents faced a loss due to joint game development costs.

• In Q1 FY07/25, the company reported revenue of JPY4.4bn, operating profit of JPY1.1bn, and net income of JPY720mn.
• Consumer Service business revenue was JPY3.8bn, with a segment profit of JPY1.1bn, and promotion costs of JPY2.2bn.
• Online Advertising business revenue was JPY644mn, segment profit was JPY34mn, and promotion costs were JPY114mn.

• TOREX SEMICONDUCTOR announced 1H FY25/3 consolidated financial results at 16:00 on Thursday 11/14, and it held a results briefing on Tuesday 11/19 at 16:00.
• Headline numbers were consolidated net sales -5.5% YoY, operating profit +277.2% YoY, and profit attributable to owners of parent turning into the black.
• However, in a pattern similar to the three months for Q2-only last term, profits dropped into losses, from an operating loss of JPY 133 million for FY24/3 Q2 (OPM -1.9%) → an operating loss of JPY 28 million for FY25/3 Q2 (OPM -0.4%), partly reflecting the high electricity rates for Phenitec, citing the prolonged adjustment of distribution inventories due to a slowdown in demand for industrial equipment as well as general consumer electronics, and a pause in the recovery of the China market. 

• The Sanrio (8136 JP) placement is likely to be priced today. With the stock 8.8% lower from undisturbed, expect a small discount to today’s close.
• The stock has traded as expected over the last 9 trading days – a sharp drop followed by a strong upward move and then profit taking.
• We expect there will be strong interest in the placement and oversubscription could lead to upside from here. Shorts have increased and will look to cover into the placement.

• Price action has been mired in a sideways range since hitting these levels in Feb 2024.  Implied’s have come full circle and are at the same levels they were in Feb.
• Option volumes over the past week look to be playing for a break above the sideways range of the last two months or a break below it.
• Skew is very steep with heavy Put volumes and open interest at levels under the current range.

• ASKA Pharmaceutical Holdings represents an attractive investment opportunity with substantial upside potential
• The company combines solid growth, strong profitability, and clear avenues for shareholder value enhancement.
• With Nippon Active Value’s increasing involvement and the stock trading at deeply discounted valuations, ASKA is well-positioned for a re-rating.

• The +118.3% YoY growth in FY24 Q1~Q3 operating profit [OP] of ¥3,649mil on sales of ¥13,682mil (+37.1% YoY)] was due to easy comps, rather than a full recovery, especially in demand associated with PCs and servers used in general data centre.
• One of the growth drivers in FY24 is package demand associated with generative AI, to which MEC’s core products, CZ-8101 and CZ-8401 chemicals are used.
• MEC has maintained its FY24 guidance for a consolidated annual dividend payment of ¥45/share.

• In many cases, management is involved rather than seeking clarification of the actual situation from an independent body. This is the reason why scandals are repeated.
• In Japan, awareness of integrity and code of ethics compliance remains very low. A thorough awareness change is required to consider “what is ethical to do and what is not.”
• Even after the revision of Whistleblower Protection Act in 2022, harassment of whistleblowers hasn’t stopped. Consequently, the number of whistleblowers is low and whistleblowing hasn’t been able to deter scandals.