Japan

• Today, Japan Post Holdings (6178 JP) announced results (and Mar25 guidance) as did its subsidiaries Japan Post Insurance (7181 JP) and Japan Post Bank (7182 JP). 
• There are a number of interesting things in all the announcements/presentations but the most interesting one for JPH holders is a big buyback. Another one.
• The company has announced a ¥350bn buyback. It is larger than last year’s (¥300bn) buyback and has another important difference.

• Today, S Line Co Ltd (9078 JP) announced its CEO would conduct a Tender Offer MBO to buy out the ¥50bn-target revenue logistics company, at 0.6x book. 
• The company announced results with revenues up. But withdrew its existing MTMP which said revenues would be up 10% from here to March 2025 and ROE would be higher.
• This is the wrong price. It should engender some upset, but active investors own almost nothing it seems. 

• In FY25, Nihon Kohden (6849 JP) guided for domestic revenue of ¥147B, up 3% YoY. The demand for patient monitors and treatment equipment is expected to remain steady.
• Nihon Kohden expects North America business to report a revenue CAGR of 11% (fastest among all the other regions) during FY24–27, outpacing mid-single-digit growth of the market.
• The company announced ¥10B buyback plan to repurchase up to 6M shares, representing 3.57% of total number of issued shares from August 5, 2024, to March 31, 2025.

• Recruit Holdings (6098 JP) reported 4Q and full-year FY03/2024 results today. Earnings beat own guidance as well as consensus estimates.
• Weakening labour markets have negatively impacted all business segments and new pricing model for Indeed has not really been successful.
• Recruit expects a recovery in 2HFY03/2025, but at the rate at which job openings are going down, we remain cautious.

• Code of Corporate Conduct lacks explanation of the role to be played by a listed company and the background. Consequently, there’re cases where the same companies have repeatedly committed misconduct.
• For companies that are good at pretending that they are trying, without any substance to their corporate governance, making the provisions of Corporate Governance Code mandatory effort won’t be effective.
• TSE’s request seems to be an effort obligation. It is good that the substance of the company’s improvement plan, which only made an effort to improve, will be improved.

• Yutori , the Zozo-controlled online fashion mall, is diversifying into cosmetics and other items, with wholesale distribution to chain stores as well as sales through its own mall.
• The fledgling online mall continues to grow fast, with sales up 74% so far this year.
• It is in essence Zozo 20 years ago given its focus on the teen and youth market but with the difference in that it has Zozo’s experience and advice.

• There were many sceptics when Don Quijote bought Uny given that no other GMS retailer was performing well.
• Today, Uny is finding new relevance thanks to the adoption of merchandising and marketing from Don Quijote.
• But the real secret ingredient is, as in Donki stores, giving staff the freedom and responsibility they always wanted – including profitability of each store.

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.

• Indofood CBP Sukses
• Pakuwon Jati
• Rakuten

• In March, Modec Inc (6269 JP) announced the TSE had said Modec at 29.3% (end-Dec-23) was below the required 35% tradable shares level required for continued listing on TSE Prime. 
• It announced a “Basic Plan” to comply with the criteria which involved convincing one of the three major corporate holders to sell some. They needed to sell about 6%.
• Mitsui E&S has announced it will sell 32%, and 37% including greenshoe. This is overdoing it in a huge way. Mitsui E&S is getting out. This is a re-IPO.

• Modec Inc (6269 JP) has announced a secondary offering of up to 25.2 million shares (including overallotment). The largest shareholder, Mitsui E&S Holdings (7003 JP), is the seller.
• MODEC’s goal with the secondary offering is to reconfigure its shareholder mix to have a diverse base of shareholders who support its long-term strategies and a better tradable share ratio.
• Looking at recent large Japanese placements is instructive for understanding the potential offer price. The pricing date will likely fall between 22 and 28 May (likely 22 May).

• Last year with earnings, Ushio Inc (6925 JP) announced a HUUUGE buyback discussed in  HUUUGE Ushio (6925) Buyback. The headline was 17% of shares out. They ended up buying 13.2%. 
• Last year the stock popped on the news. Then shares went sideways for months. Then they went up on stable (bad) earnings guidance in H2. Today they beat Q3-updated guidance.
• But today they announced a “new growth strategy” to 2030, and guided to a SHARP (-60%) drop in OP and NP to March 2025, and announced a HUUUGE Buyback. Again.

• There are 15 stocks in Japan that will be sold by passive trackers at the close on 31 May.
• Short interest has been increasing in these stocks over the last few months and there will be covering on implementation date.
• Cumulative excess volume on all stocks has risen in the last couple of months though the pace of the increase has varied.

• Mitsui E&S Holdings (7003 JP) is looking to raise approximately US$451m through a secondary follow-on offering, via selling approximately 21.9m shares (32% of TSO) of Modec Inc (6269 JP)’s stock. 
• The deal is a large one to digest at 81 days of three month ADV. 
• In this note, we will talk about the placement and run the deal through our ECM framework.

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.

• Lippo Karawaci
• Softbank Group

• An uplift in China orders – Q1 FY12/24 results saw a continued decline in sales by 7.4% YoY and 9.3% QoQ.
• However, the core Machine Tools segment saw flat sales QoQ, and order visibility improved with China orders rising by 39.4% QoQ albeit from a low base.
• Cost reduction efforts have commenced and are set to accelerate into Q2 FY12/24 which should improve the scope for profitability, although ultimately this will be sales volume dependent. 

• Today SMO and CRO operator I’Rom Group (2372 JP) announced an MBO where Blackstone would be the sponsor.
• From outward appearances, it would seem to be an estate management exercise. It’s not particularly rich as a bid, but it isn’t awful. 
• I expect this gets done as Mori-san and family and friends appear to have 58% going in. Expected to start in June.

• Pre-Open on February 1 2024, Aozora Bank Ltd (8304 JP) announced writedowns and a forecast revision, lowering full-year net profit expectations from +¥24bn to -¥28bn.
• Shares which had been trading relatively richly (and heavily shorted) fell sharply over the following days, then noted activist Murakami-san started buying in. Then he bought more and went silent.
• Today, Aozora reported full-year earnings – much worse than expected and Mar25 guidance lower than already low Street estimates. And they are selling 15% stake to Daiwa Securities Group. Oof!

• Toppan Printing (7911 JP) established a new Medium-Term Management Plan with targets in May 2023. 8% ROE, PBR >1.0x. More DX business. More management modernisation. More ESG. Mooooarrrrr!
• They also promised capital measures: ¥100bn of buybacks over three years. Total shareholder return of 50%+ over three years. More progress in selling down cross-holdings. 
• Today the company reported better-than expected full-year revenues, OP, and Net Profit, added more to the buybacks, and shortened the buyback period to two years. Details matter.

• EssilorLuxottica has always played a long game in Japan but since 2018 the eyewear giant has been investing in local production and a growing store network.
• As reported by Mark Chadwick,Travis Lundy and myself, Luxottica has a stake in Paris Miki Holdings (7455 JP) and the Japanese firm is a key strategic interest for EssilorLuxottica.
• That Luxottica is increasing its investments in Japan retail through acquisition is evidenced by its takeover of Washin Optical, a 70-store eyewear chain, last month.

• Arm’s valuation has driven the group NAV to a new high at fiscal year-end in March; with Arm accounting for 45% of group equity value, NAV downside risk is high
• JPY depreciation has been NAV supportive, but this could reverse; SVF2 remains very exposed to financing costs, with 87% of its equity value in private companies
• Softbank shares trade at a 57% discount to the estimated NAV; yet the downside risks to Arm’s valuation, along with SVF2 valuation headwinds, should keep the discount wide

• Shiseido Company (4911 JP) reported 1Q24 results last Friday.  Core operating profit declined less than expected at -10% yoy, and exceeded the management’s target. 
• The beat was driven by robust growth in Japan, Americas, and EMEA, while China steadily recovered.  Overall sales growth was 4% yoy in the quarter. 
• As a reminder, the investment thesis for Shiseido is twofold:  a recovering China mainly due to one-off concerns (nuclear wastewater), and a margin recovery story in Japan. 

• I’Rom Group (2372 JP) recommended a Blackstone (BX US)-sponsored pre-conditional MBO at JPY2,800, a 49.5% premium to the undisturbed price. 
• Approvals under the competition laws of Japan and Australia are a precondition. The tender offer is expected to start in mid-June.
• The offer is attractive and requires a 37% minority acceptance rate. While the timing of regulatory approvals is a risk, the transaction is a done deal.

• Olympus Corp (7733 JP) has announced a buyback plan for up to 60M shares, representing 5.15% of outstanding shares, by spending ¥100B from May 13 to December 31, 2024.
• The company has posted mixed FY24 results, with revenue beating and operating and net profits missing guidance. Olympus has guided for just 9% revenue growth for FY25.
• Overall business outlook of the company seems to be bleak. With limited upside potential expected, it will be wise to tender shares through the company’s buyback offer.

• Although many institutional investors’ voting criteria apply the rule of “support the proposed appointment of top management director if one female director is nominated,” more in-depth examination should be conducted.
• Agenda based on TSE’s request isn’t easy to understand for all investors, and the current voting guidelines for domestic institutional investors make it unlikely that they will vote for it.
• The ISS ROE criteria will be raised next year, and companies may not raise ROE with bold shareholder returns until the voting guidelines for domestic institutional investors are also raised.

• FY Mar-24 results were ahead of guidance, but management’s FY Mar-25 forecast has sales flat and profits down in the second half.
• The shares have dropped back 24% from their all-time high, bringing the forward P/E ratio down to 22X.
• China and foundry remain strong while North America and memory pick up. Guidance is probably conservative. Buy into the weakness.

• In May 2023, KDDI Corp (9433 JP) announced a ¥300bn buyback program, did nothing for two months, then announced a Tender Offer Buyback to buy shares from Toyota. 
• Toyota had increased its stake years before, then KDDI bought back shares from others, so Toyota was backing its ownership down. I discussed the relationships, history, etc, here.
• This year, KDDI announced Friday with earnings that is buying back another large stake from Toyota. 

• Sumitomo Chemical issued new guidance in-line for 3/24 and xx% ahead of consensus for 3/25 EBIT, yet, the shares promptly declined by 10%.
• Traders were probably spooked by the company’s booking of ¥340bn in impairments that was ¥200bn more than published consensus, but we argue that this was more than already priced in.
• The only reasonable explanation for the reaction is that the market doesn’t believe the new guidance for 3/25. This could prove to be a huge mistake.

• MHI was sold off last week as FY Mar-24 operating profit fell short of guidance and management guided for a decline in new orders this fiscal year.
• Orders momentum has peaked. Sales and profits will follow. But the latter are still rising and guidance could once again be conservative.
• Consolidation of the share price is likely to continue until orders and profit trends are confirmed.

• 1H Results: On April 12, 2024, Paycloud Holdings Inc. announced its 2Q FY2024/8 earnings, its first earnings announcement since becoming a holding company and changing its name on March 1, 2024.
• In 1H FY2024/8, the company reported net sales of ¥1,990 mn, adjusted EBITDA of ¥226 mn, and operating profit of ¥86 mn. It had an irregular 5-month accounting period in 1Q FY2023/8 that included the July-August 2022 earnings following a change in the accounting period of the former Valuedesign Inc., which was merged with the company.
• As a result, the company’s earnings summary for 1H FY2024/8 show sales being down 12% YoY, adjusted EBITDA up 2% YoY, and operating profit up 237% YoY.

• KKR’s Offer for Alps Logistics (9055 JP) is a knock-out price. HUGE MINORITY WIN. This trades a little wide because the “gap risk” is so large, but it’s still safe.
• It’s reasonable to expect the listing of various components of L’Occitane (973 HK) other than in HK, would (should) be hugely accretive; for those investors who can (or may) participate.
• Hankook Tire & Technology (161390 KS) seeks a controlling stake in Hanon Systems (018880 KS).

• Most large companies initially estimate sales and profits conservatively, and CapEx, which is often planned more than a year in advance, isn’t often above plan.
• Companies have a cautious earnings outlook, but the market consensus still expects profit growth in FY2024. CapEx growth in the BOJ Tankan is expected to be slightly higher than profits.
• Assuming an 8.5% increase in CapEx for large manufacturing companies and a low single-digit growth in the recurring profit outlook, the level of cash on hand is unlikely to decrease.

• Yesterday after the close, Nissin Corp (9066 JP) announced earnings (down vs last year), guidance (back up partway to last year), and a sale of securities to raise ¥6+bn.
• Nissin also announced an employee share incentive plan (¥900mm) and an adjustment to its MTMP from Apr24 to Mar27. Much lower revenues. Same OP. Higher net. Higher Div Payout ratio.
• They also announced a really big buyback which should be done by the time people read this. It is really big.

• Nihon Housing (4781 JP) is a business which manages real estate for owners (office, apartment management, janitorial, cleaning, facilities management, security, agency, sub-leasing package systems, etc). 
• The company has operated in Tokyo for 60+yrs, and they are finally just going to take what has always been a tight register private. Foreigners own 0.05%. Index owns nothing.
• This is basically a completely done deal. It will trade tight, and illiquidly.

• Bloomberg reports that Teijin Ltd (3401 JP) wants to sell its 55% stake in Infocom Corp (4348 JP). The rumoured bidders are Sony Corp (6758 JP), Blackstone and KKR. 
• Based on precedents, the offer structure will likely be structured such that Teijin provides an irrevocable NOT to accept but vote in favour of share consolidation at the EGM.
• Bloomberg suggests that Infocom could be valued at JPY200 billion. If this refers to market cap, the tender offer is JPY3,472, a 16.5% premium to the last close.

• In late February, a specialty media outlet noted Alps Logistics (9055 JP) was up for sale. I missed that. Yesterday pre-close, a headline crossed the wires. A deal was imminent.
• Nikkei overnight said “¥150bn+ market cap”. I thought KKR might slightly overpay the Hitachi Transport System (9086 JP) multiple paid. That meant +13% today was full-ish. I was wrong.
• KKR is paying ¥5,774 to minorities, and about ¥4,084-ish to the parent, who is reinvesting at ¥5,774. This is a total knock-out price paid. HUGE MINORITY WIN.

• Alps Logistics (9055 JP) recommended a pre-conditional tender offer from a KKR & Co (KKR US) subsidiary at JPY5,774, 32.7% and 69.8% premium to the last close and undisturbed price, respectively. 
• The pre-condition is approvals under competition laws of Japan, China, the EU, South Korea and Vietnam. The tender offer is expected to start in mid-August.
• The offer represents an all-time high and is a knockout bid. While the timing of regulatory approvals is a risk, the transaction is a done deal. 

• 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.
• Dozens of companies have been able to meet the key Section Transfer requirements on paper for several months but there have been no TOPIX Inclusions announcements in 2024 so far. 
• However, there are some pre-event candidates we believe are worth monitoring as they have previously confirmed their desire to move to the Prime Market.

• FY2023 Success: Daikin achieved record-high sales and profit, driven by FX impacts. Despite challenges like reduced demand, the Air Conditioning business expanded in key markets.
• Ambitious Targets: FY3/25 targets include surpassing previous financial records, despite continued sluggish demand.
• Cautious Outlook: While optimistic about market share gains, reservations persist, particularly regarding heat pumps. Stock performance remains steady, trading in line with historical averages.

• Committing to raising production capacity –Shofu announced its fifth medium-term plan, covering the four years from FY3/25 to FY3/28.
• The core message is that the company has competitive products and high demand visibility in overseas markets, and is reaching the point of attaining annual sales volume of ¥50bn.
• The plan will involve significant capital allocation to raise production capacity and other business investments to meet its goals. zed.

• News: The Nikkei on April 25th reported, “A dark cloud is hovering over the future of the electric car (EV) market.
• The low prices of Chinese EV manufacturers, backed by Chinese government subsidies, are adversely affecting the performance of related companies such as motor giant Nidec Corporation (TSE Prime: 6594).
• The spread of low-cost EVs will substantially change the structure of the industry, and investors are beginning to look out for companies that will benefit from the commoditization of EVs.

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.

• China Oil And Gas
• Lippo Karawaci
• SJM Holdings
• Softbank Group

• Profit margins boosted by cuts in personnel, R&D, CapEx, and corporate tax rates. Much of the improved free cash flow went onto the balance sheet instead of being invested.
• OP Margin’s sluggish growth indicates that the cost-cutting model is no longer working. Investments are needed to create products with higher gross margins.
• While the limitations of the cost-cutting model can be seen, ROE, which indicates the achievement of the management goal of increasing medium-to-long-term shareholder returns, is sluggish in many companies.

• There was a news article I missed in late February saying Alps Alpine (6770 JP), parent of Alps Logistics (9055 JP) was in the process of selling the logistics unit.
• A deal made sense for a strategic given the upcoming “2024 Problem”. Pre-close, headlines blared, the stock popped 12%, now we’re at double the end-February price.
• Late in the evening,Alps Logistics said it had received a bid from Logisteed but nothing had been decided. This morning we have a few more details, but nothing concrete

• Last May, Nippon Yusen Kk (9101 JP) announced buybacks of ¥200bn over 2 years. In August, they changed it to say  ¥200bn in the next nine months.
• That helped support the stock through early March. It was big, and a decent percentage of ADV. Today, they announced earnings and guidance and another ¥100bn buyback through April 2025.
• Earnings were OK. Guidance is a little low vs the Street. The stock popped 5% from where it was trading. Lower impact vs 2023. More cross-holder overhang consideration. 

• MHI’s stock fell 7% following the announcement of results. Guidance for FY3/25 missed analyst expectations
• Even so, MHI remains a key beneficiary of the global shift to clean energy and national policies aimed at bolstering national security 
• We remain bullish. The stock has performed well this year and but 13x EV/EBIT seems reasonable given the structural drivers

• The review period for the Nikkei 225 (NKY INDEX) September rebalance ends in July. There could be three changes at the rebalance with sector balance in focus for the additions.
• Depending on the changes, passive trackers will need to buy between 5-16x ADV (10.1%-24% of real float) on the inclusions and sell between 4-42x ADV on the deletions.
• Fast Retailing (9983 JP) will be capped to 10% of the index weight while Tokyo Electron (8035 JP) is also close to the 10% cap.

• Kawasaki Kisen Kaisha (9107 JP) today announced earnings. Ocean Network Express earnings were out earlier and beyond that, Consolidated Revs beat, OP faltered, but NP was spot on guidance.
• Guidance for the year to March 2025 is well ahead of consensus on revenue, slightly ahead on OP, and just a wee bit ahead on NP. 
• But the company raised its 5yr MTMP Shareholder Return from ¥500bn to ¥700bn and set a new ¥100bn (5.5%) buyback to be executed in the next 3 months.

• Today, after the close, Chilled & Frozen Logistics Holdings (9099 JP) released a required (by the FIEA) Target Opinion Statement saying “Opinion Withheld.”
• C&F notes that it had received 9 possible counter-proposals, offered due dili to a certain extent, and by May 1, had 4 binding offers. 
• There are interesting competitive dynamics at play here, but cross-holding concentration matters. The question is… How much is enough?

• Operating profit: FY3/24 OP was 529 billion yen (+4.9% YoY) vs analyst estimates of 537 billion (1.5% miss)
• FY3/25 Operating guidance is 400 billion yen, significantly below analyst expectations of 480 billions (-16% miss).
• The initial market reaction may be negative, we would use that as an opportunity to buy into the stock for the cyclical upturn in FY3/26.

• The reason why the approval for the shareholder proposal on profit appropriation exceeded 40% is that the proposal was easy to understand and easy to get approval from other shareholders.
• Although domestic institutional investors don’t currently vote against a low ROE when it comes to improvement measures, they may take a more aggressive stance if ISS raises its ROE criteria.
• The trend of top management being reappointed even with continued low ROE is likely to continue for a while longer, but the time frame is definitely getting smaller.

• Dic Corp is a chemical company with a top global market share in products such as printing ink, organic pigments, and PPS compounds.
• DIC recorded FY12/23 sales of JPY1,038.7bn, operating profit of JPY17.9bn, recurring profit of JPY9.2bn, and net loss attributable to owners of the parent of JPY39.9bn.
• On February 13, 2024, DIC Corporation announced revisions to its long-term management targets in DIC Vision 2030.

• Seven & I’s plans to consolidate its supermarket operations and list in 2027 remain speculative but the timing shows that management was swayed more by the founder’s death than activists.
• It will need to bring Ito-Yokado (IY) back to profit first and, although it wants to keep at least a 15% stake, there is the strong possibility of a sale.
• What matters more is not IY stores but the new SIP format. With CVS saturated, SIP is only way to grow within Japan but this depends on Ito-Yokado supply chains.

• The company’s management fees now cover the operating costs after many years of losses
• Recent fund raising has surpassed expectations for its latest VC fund
• The company’s steps towards better capital allocation are trending in the right direction

• Komatsu’s operating profits for FY3/24 of Y607 billion (+24% YoY) surpassed estimates on strong U.S. equipment sales
• Komatsu guides for FY3/25 operating profits of ¥557 billion (-8.3% YoY), assuming ¥140/US$
• We believe that the market remains too focused on the near-term growth slowdown, while we believe that Komatsu is attractively priced at under 10x EV/EBIT