Japan

• Chilled & Frozen Logistics Holdings (9099 JP) shares are trading 85.7% above AZ-Com Maruwa Holdings (9090 JP) JPY3,000 offer due to the disclosure of four counterbidders. 
• The white knight “winning” bidder can secure the Board’s recommendation if it is the highest offer (likely well below the last close) and does not result in AZ-COM Maruwa-type dis-synergies. 
• AZ-COM Maruwa would face the dilemma of bumping, particularly if the white knight bidder secures irrevocables and the Board presents a compelling case to support the white knight bidder.

• Hoshino Resorts Reit (3287 JP) is looking to raise US$125m from a primary follow-on. Proceeds will be used to acquire the OMO7 Osaka asset.
• The REIT has been active on the acquisition front, undertaking a number of capital raisings in recent years.
• In this note, we will talk about the placement and run the deal through our ECM framework.

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• On the IPO front, Go Digit managed to do well despite somewhat tepid subscription rates, while Shift Up (462870 KS) was looking to be the next hot listing in Korea.
• On the placement front, Renesas Electronics (6723 JP) mega-block kept the cross-shareholding unwind going.

• Although it’s possible to move AGM forward given the timing of financial reporting, 70% of companies will hold their AGM during the 3 days of the last week of June.
• As long as the concentration of AGM dates continues, the start of electronic provision of AGM documents should at least be accelerated to allow time to review the agenda.
• Only slightly less than 30% of prime market listed companies provide English translations of all convocation notices, including business reports and financial statements.

• A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
• ECM developments: Modec Inc (6269 JP) prices its US$535 million secondary offering.
• Event-Driven developments: Shanghai Henlius Biotech (2696 HK), Hong Kong Television Network (1137 HK). Sciclone Pharmaceuticals (6600 HK), Kfc Holdings Japan (9873 JP), Best World International (BEST SP), PropertyGuru (PGRU US). 

• Sony Group Corporation recently reported its FY 2023 results and offered insights into its FY 2024 forecast as well as its fifth mid-range plan.
• The corporation experienced a record high in consolidated sales at JPY 13,020.8 billion while consolidated operating income was JPY 1,208.8 billion.
• Net income stood at JPY 970.6 billion, and consolidated adjusted EBITDA was JPY 1,880 billion.

• Honda Motor’s earnings of FY ’24 reveals that the mobility company has been posting a historic high operating profit of JPY 1,381.9 billion, with an operating profit margin of 6.8%.
• Underpinning this growth has been the company’s core strategy of focusing on environmental sustainability and safety, which is resonating well with the consumers.
• For FY ’25, Honda has set a higher target for operating profit at JPY 1.42 billion, aiming to achieve an operating profit margin of 7%, a year ahead of their original plan.

• Companies that increased Tobin’sQ have further increased Tobin’sQ due to continued growth in ROE and ROA. They have room to further improve return on capital by reducing cash on hand.
• Companies with lower Tobin’s Q may include small-cap stocks that are increasingly undervalued because they have relatively high ROE and ROA but are not covered by overseas investors.
• Over the past year, few companies raised their valuations based solely on expectations of P/B bottoming-out without improving profitability, and IR activities alone have had limited effect in boosting valuations.

• The continued “higher for longer” interest rates in the US, along with widening JGB yields adds weight to the Bank of Japan potentially raising benchmark rates further
• In this report, we expand our coverage of the bigger cap banks’ metrics to include the equity holdings of the top six market caps and the banks’ BoJ deposits
• We see further upside for Japanese bank shares, especially those geared into higher domestic rates and with the potential for equity holdings disposals; we like Resona, Mizuho, SMFG and Concordia

• Toyota Motor Corporation recently concluded its fiscal year ended March 2024 with notable financial results and established expectations for the upcoming fiscal year.
• The company’s actual operating income reached a record JPY 5.35 trillion, significantly bolstered by support and cooperation from various stakeholders, including employees, suppliers, and dealers.
• This substantial figure reflects the company’s commitment to region and product-based management over many years.

• Terumo Corp (4543 JP) reported 18% revenue growth in Q4FY24, driven by C&V and TBCT businesses. With the steady progress in profit improvement measures, operating profit rose 45%.
• For FY25, the company expects revenue of ¥980B (up 6% YoY), operating profit of ¥165B (up 18% YoY), and net profit of ¥122B (up 15% YoY).
• The company remains cautious and provided a conservative FY25 guidance. Improvement in any its assumptions provides room for upward revision of the guidance.

• While communication with investors is an important tool, “TSE’s request” should be the starting point for solving management issues, as it gave managers the opportunity to think about strategy themselves.
• Since many Japanese companies have management issues, it is not surprising that more activist investors believe that investment opportunities can be created by encouraging companies to solve these issues.
• Even if a company can convince activist investors through shareholder relations, it will only buy time, and investors/shareholders are looking to increase corporate value by solving problems.

• In late March, AZ-Com Maruwa Holdings (9090 JP) made an unsolicited (“hostile”) bid for Chilled & Frozen Logistics Holdings (9099 JP) at a near 50% premium at ¥3,000/share.
• It traded through, then C&F ran a bid solicitation process, got four bids. Since the day AFTER that announcement, the stock is up 56%. We approach Alps Logistics multiples.
• This deal doesn’t get the split price benefit that HTS and Alps Logistics did. And it is a fundamentally different logistics business. And target management dynamics are different.

• Fancl Corp (4921 JP)‘s share price has declined 18% year-to-date, greatly under-performing the Nikkei 225 (NKY INDEX) which was up 17% year-to-date. 
• The company recently announced FY24 results (fiscal year ending March).  Sales grew 7% yoy and operating profit grew 60% yoy in FY24. 
• I believe the stock price is attractive at 23x 2024 PE with 15% expected earnings CAGR for the next 3 years.

• Daifuku released FY3/24 results on 10 May. Since then the share price has declined by 15%, giving investors an attractive entry point.
• Daifuku is a key beneficiary of warehouse automation, which is forecast to grow at a CAGR of over 6%, with industry spend projected to reach $37 billion by 2030
• We expect the market to price in an order recovery in the core electronics segment and believe that the MTP is yet to be factored into the current share price.

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.

• SJM Holdings
• Softbank Group
• Yankuang Energy Group

• Since the US$535 million secondary placement announcement, Modec Inc (6269 JP)’s shares are down 15% from the undisturbed price of JPY3,320 per share (14 May).
• Looking at recent large Japanese placements is instructive to understand the potential trading pattern. So far, Modec’s shares have followed the pattern of previous large placements.
• The offering will likely be priced on 22 May. Investors who have participated in previous large Japanese placements tend to secure positive returns.

• Noted Japanese activist MURAKAMI Yoshiaki and his entities and relations went from 4.98% to 19.88% of Mitsui Matsushima (1518 JP) at an average ¥3,500/share from 2 May through 10 May.
• Then they bought an additional 5.44% on 13 May, just before earnings, in the midst of a huge run-up, paying 40% more for that 5% than the first 5%. 
• I thought that might be the end, but in two days, they have bought an additional 9+%. There is something else going on. It is worthy of your attention. 

• Japan Post Insurance (7181 JP) shows us that worsening policies in force is far more important to earnings than staggering growth of new policies.
• Returns and profit growth are weak and this should matter more than a puritanical focus on new policies, embedded value.
• Non-Operational line items, likely hedging costs and reserve adjustments, are cancelling out most all positives in operations.

• Since shareholder proposals related to “TSE requests” are unlikely to be passed at the AGM, many companies are likely to have capital profitability improvement plans that merely indicate effort targets.
• The outperformance of TOPIX by the company that announced the medium-term management plan can be attributed to the short-term outperformance of the company that announced the share repurchase.
• Investors don’t trust the contents of “mid-term management plan” because they are focusing on more reliable shareholder return rather than betting on improving operating margins over the uncertain three-year horizon.

• Until recently, Onward Holdings looked set for a gradual decline into insignificance like its main channel of regional department stores. 
• But Onward has instead become an exemplar of how to make omnichannel retailing work, with growing sales across both online and a burgeoning new store network.
• Like some other old apparel firms, Onward is showing that there is significant upside top and bottom line growth in premium apparel markets.

• Today post-close, Denso Corp (6902 JP) (via BofA) announced a selldown of 78,127,800 shares of Renesas Electronics (6723 JP). This is the latest in a line of block exits.  
• There was the 130mm offering in November last year by INCJ. There was 123mm shares in Jan 2024 by NEC and Hitachi. A month later, 50mm shares from Mitsubishi Electric.
• In general, they have been absorbed, but one hasn’t needed to buy in the market. Some have broken price. Here, the pricing range is aggressive.

• Carlyle has a deal to buy Kfc Holdings Japan (9873 JP). ¥6,500/share is a 78% premium to undisturbed as a professional holder sells in an auction to the highest bidder.
• That’s a great format for achieving a great price. And we got one. This should get done easily.
• Importantly, the Bidco is named Crispy KK. It is 100% owned by Juicy KK. Juicy KK itself is 100% owned by Crispy Holdings L.P. Someone had some fun.

• Denso Corp (6902 JP) is looking to raise US$1.39bn from selling a portion of its stake in Renesas Electronics (6723 JP).
• DENSO’s selldown is a small one at just 4.3 days of ADV. While there is an overhang of around 4% of TSO, DENSO will be locked up for 270 days.
• In this note, we will talk about the placement and run the deal through our ECM framework.

• Mitsui Matsushima (1518 JP) was a coal company starting over 100yrs ago. A bunch of years ago it started a solar energy business and then started M&A to diversify.
• Coal closed last year and since, MMH has become an investment holdco for “basic businesses” (drinking straws, conveyor system chains, document shredders, weighing machines, crystal measuring devices, mask blanks, etc).
• Murakami Group accumulated 4.98% in five weeks, then the next 14.9% in five days. Pump & Dump like Pacific Metals? Activism like JAFCO? Or something else more interesting?

• Kfc Holdings Japan (9873 JP) has recommended a tender offer from Carlyle Group / (CG US) at JPY6,500 per share, a 20.4% premium to the last close. 
• The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the tender offer is set at a 31.54% ownership ratio.
• Due to the Mitsubishi Corp (8058 JP) irrevocable, the minimum acceptance condition requires a 48.6% minority acceptance rate. The acceptance condition is achievable as the offer is a knockout bid. 

• Company Forecasts extremely conservative at current and expected metal prices
• Scarcity Value for a liquid, large-cap gold miner in Japan
• Balance Sheet will allow future share buybacks and dividend in the harvesting phase

• In Q3FY24, Asahi Intecc (7747 JP) reported 8% YoY increase in revenue to ¥26B, ahead of estimate of ¥24B, mainly driven by the exchange rate impact of higher foreign currencies.
• Higher SG&A expenses impacted the profitability. Q3FY24 operating profit margin declined to 23.3% from 26.6% in Q3FY23, while net profit margin decreased to 16.0% from 18.5% during the same time.
• In Q4FY24, revenue is expected to decline 3% YoY to ¥19.6B. Operating and net profits are anticipated to plunge 74% and 26%, YoY to ¥417M and ¥832M, respectively.

• Following up on our earlier cross-shareholding notes, in this note we look at Mitsubishi UFJ Financial (MUFG) (8306 JP)’s cross-shareholding.
• MUFG had a stake over US$100m in at least 47 listed Japanese stocks, amounting to a total of around US$19bn.
• In this note, we take a look at its stakes in various companies to see which ones could possibly be candidates for further selldowns.

• Excluding the special factor of companies applying transitional measures moving to standard, the pace of natural decrease of prime market listed companies is moderate.
• Companies with high foreign shareholdings and large market capitalization are already highly valued. Companies that are not have investment opportunities that are often at a discount due to liquidity.
• Nearly half of the companies are companies with large shareholders holding more than 20% equity; investment opportunities are expected to increase as companies go private through TOBs and MBOs.

• The company has slashed FY Sep-24 guidance after missing 1H sales and profit targets by wide margins. Dividend maintained, 2-for-1 split planned and buyback under consideration.
• Capex has been cut, reflecting lower growth expectations. R&D also. Inventory adjustments will eventually be completed, but Chinese competiton will remain a problem.
• The share price has dropped 30% in the past year and 10.5% since May 8, putting the shares on 27 times EPS guidance. Still not cheap, but getting there.

• There is Japan Post Bank (7182 JP) buyback risk that might cause Japan Post Holdings (6178 JP)/JPB unwinds; though probably a H2 risk.
• Great Eastern Holdings (GE SP) has consistently traded through OCBC (OCBC SP)‘s Offer terms. Someone appears to be accumulating a stake to block an Exit/Delisting Offer, and force a bump.
• L’Occitane (973 HK)‘s scrip pre-condition has been satisfied. But still the Offeror prevaricates. 

Dentsu’s Q1 results indicate a slow start to the year, with organic net revenue down by 3.7%. However, prospects are improving, buoyed by new business wins and weighted to H2, which leave full year expectations (and our forecasts) unchanged. The One dentsu initiative, bringing together skill sets in consulting, technology, media and creative, is supporting improved pitch win rates, and giving greater coherence and consistency to the group product and service offering. We expect this to be a central element of the new management medium-term strategy, set to be unveiled during H2. The rating remains at a substantial discount to global peers, which we anticipate will narrow as evidence of renewed growth builds.

• Japan Post Bank (7182 JP) saw its net profit surge from non-recurring gains, which was from the sale of stocks. 
• The company’s cost of funds worsened more than the improvement in its yields, and we believe this remains an issue related to hedging costs.
• Unrealized gains on foreign bonds remains significantly higher now than a year ago and this may again be the driver for earnings, but still with very low ROA.

• The Nikkei 225 INDEX has been rallying a bit last week and closed the week up. A rebound from the previous downtrend is underway.
• A temporary bottom may have been established in May, it is not clear if the index is about to go lower or higher, but our pattern model readings suggests higher.
• If the index continues to rally, the first major resistance area will be around 40k.

• Few companies have disclosed their cost of capital, so TSE provided specific indicators for this purpose. On the other hand, allergies to cost of capital disclosure are persistent in companies.
• It is a concern that many companies still have more fixed remuneration than variable remuneration for compensation incentives, which are a mechanism for achieving capital profitability goals like ROE.
• Engagement with overseas investors can be effective, but there are challenges, such as the existence of passive funds and companies with small market capitalizations that are not eligible for investment.

• OHBA (hereafter referred to as “the Company”) has achieved 12 consecutive years of operating profit growth through FY2023/5, and is on track to stretch this streak to 13 consecutive years in FY2024/5, having posted a 20.1% YoY increase in operating profit for cumulative 3Q FY2024/5.
• The Company has secured orders for a number of landmark construction projects from both the public and private sectors, including basic policy formulation and master plan preparation work associated with the optimization of Japan Self-Defense Force facilities, Kumamoto JASM/TSMC (Taiwan Semiconductor Manufacturing Company) Phase 1 plant, Sony Semiconductor Solutions Corporation plant, among others.
• It has been able to capitalize on the robust macro environment, partly supported by the continued rise in technician prices for design work outsourcing