Japan

• Originally, Brother Industries (6448 JP) wanted to buy Roland DG Corp (6789 JP).  Roland invited others to bid, didn’t tell Brother, then said Taiyo Pacific’s ¥5,035 bid won.
• That was low. Weeks later, Brother lobbed a ¥5,200 overbid. They are going through the approvals process but it isn’t clear Brother is negotiating.
• Taiyo has extended and extended and shown up in interviews. Now it has overbid at ¥5,370.

• Fanuc was up 4.7% this past week as the market reacted to a slight uptick in orders and transparently conservative guidance.
• The book-to-bill ratio remained below 1.0 in 4Q of FY Mar-24, but was up from 3Q, which appears to have been the low point in the cycle.
• Inflation and ongoing inventory adjustments indicate a slow recovery, but demand for automation  from traditional markets and new opportunities in aerospace and other industries should support long-term growth.

• Astellas Pharma (4503 JP) reported ¥85B revenue increase in FY24 over FY23, while Fx impacted the revenue positively by ¥96B. In local currency terms, the U.S. revenue declined 5% YoY.
• FY24 operating and net profit declined 80%+, due to amortization and impairment loss of intangible assets. Astellas is changing accounting policy to smoothen core operating and net profits in FY25.
• For FY25, Astellas guided for just 3% revenue growth. Core operating profit is expected to decline 10%, while net profit is anticipated to take a bigger hit and decrease 17%.

• Last October, activist Palliser Capital launched a campaign (presentation) on well-known “stub trade” Keisei Electric Railway Co (9009 JP) with a stake of about 1.6%. 
• The proposal? Monetise a decent stake in Oriental Land (4661 JP), repurchase shares, and invest for growth. Keisei responded 6-8 weeks ago with a buyback and 1% OLC stake sale.
• I thought that was time to bail. That was it. But now, Palliser has re-engaged. Today a press release (Japanese/English) and a Letter to the Board.

• Shin Etsu Chemical (4063 JP), owner of a 44% stake in Mimasu Semiconductor Industry (8155 JP), has announced a Tender Offer to take out minorities in Mimasu. 
• This is not surprising. They bought in 19 years ago, raised to 40+% 18yrs ago, then waited. Finally, we have a deal. But it’s too cheap. 
• Shin-Etsu starts with ~45%, and crossholders and the chairman get it to 52%. Then they need a bit to get them to 67% but it should be straightforward.

• There are a bunch of stocks that have underperformed the Nikkei 225 (NKY INDEX) and their peers and could be deleted from global passive portfolios in May.
• The deletion from passive portfolios will lead to a liquidity event at the end of May where passive trackers will need to sell multiple days of ADV.
• Shorts have been built up on all the stocks over the last few months and the extent of the positioning varies across stocks.

• Yamaha releases new guidance on May 8 for its fiscal year ending March 2025. The  previous Mid-term plan for OP was ¥68bn, while the consensus is looking for just ¥40.9bn.  
• We expect ¥50bn, and think the shares are as much as 30% undervalued.
• Analysts have responded to multiple downward revisions to current year guidance, driven by collapsing Piano sales to China, but haven’t responded to cost cutting or growth in other product lines.

• CyberAgent Inc (4751 JP) reported 2QFY09/2024 results yesterday which shows further improvement across all three segments. Both 2Q revenue and OP beat consensus estimates, with OP by a huge margin.
• Newly released game titles have helped further recovery in Gaming business while Media segment reported its first-ever OP since the company began investing on AbemaTV.
• As we continue to reiterate, the worst is over for CyberAgent (CA) and we remain positive over the company’s growth prospects.

• The two groups with the highest percentages of female board members (companies with over 30% and 20%-30%) are consistent with the characteristics of companies in which overseas investors primarily invest.
• Companies with over 30% female board members show superior values in many of Board Practices and Key Actions evaluation items. This may be due to improved engagement by overseas investors.
• Companies with no female board members have the lowest values in most Corporate Governance Practices items. Therefore, percentage of female board members indicates the seriousness of improving corporate governance practices.

• Daiichi Sankyo (4568 JP) announced better-than-expected Q4FY24 result, with all key parameters exceeding guidance. Q4 revenue increased 30% YoY to ¥429B, driven by 76% YoY growth in Enhertu product sales.
• For FY25, Daiichi Sankyo guided 9% increase in revenue to ¥1,750B. Core operating profit is expected to increase 8% to ¥210B, while net profit to decline 5% to ¥190B.
• In addition to the dividend of ¥60 per share for FY25, Daiichi Sankyo has announced buyback plan of 55M shares (2.87% of issued shares) for ¥200B.

• Frontier Management (hereafter referred to as “the company”) is a consulting firm that operates in the three pillars of management consulting, M&A advisory, and business revitalization services, as well as an investment business that began in 2022.
• Founded by Mr. Shoichiro Onishi and Mr. Masahiro Matsuoka, both former employees of the Industrial Revitalization Corporation of Japan, the company has expanded its operations through proactive hiring.
• It is characterized by its lineup of specialists with diverse backgrounds and is able to solve a wide variety of management issues as a one-stop shop. Mr. Matsuoka retired as of the shareholders’ meeting held on March 27, 2024, leaving Mr. Onishi as the sole leader of the company.

• Yesterday, post-close, Bloomberg reported a headline “*SILCHESTER REPORTS NIKON STAKE; MAY SEEK CAPITAL POLICY CHANGES“
• That was exciting. It was in all caps. It was activist-ish-y. Today the stock rose 10.3% and we got another article saying it was up because of Silchester’s filing.
• Beware the Bloomberg headline. Nuance is sometimes lost. They aren’t always designed to help investors invest. Often, the main purpose is clickbait.

• Fanuc reported a -7% decline in revenue for FY3/24 and 26% decline in operating profit. 
• The market will be disappointed by guidance for a further fall on the top line and 15% decline in profits as margins hit an all time low
• The valuation of 30x EV / EBIT suggests the market was hoping for a turnaround in profits this year. That recovery has now been pushed back

• Advance Create Co., Ltd. is an independent insurance agent that sells insurance products mainly to individuals on behalf of multiple insurance companies, also undertaking follow-up services on their behalf.
• In FY09/23, the company reported revenue of JPY10.2bn, operating loss of JPY2.0bn, recurring loss of JPY2.2bn, and net loss attributable to owners of the parent of JPY1.8bn
• On February 20, 2024, Advance Create Co., Ltd. announced that it expects to receive dividends from its consolidated subsidiary, Advance Create Reinsurance Incorporated.

• TKC Corporation provides accounting and tax services to accounting firms (and client companies they advise), local governments, and others using its own computational centers, while subsidiary TLP Corp.
• In full-year FY09/23, the company reported consolidated sales of JPY71.9bn, operating profit of JPY14.3bn, recurring profit of JPY14.8bn, and net income attributable to owners of the parent of JPY10.8bn.
• TKC does not release a medium-term business plan. However, it is pursuing the following four objectives in close cooperation with TKC National Federation.

• Pasona (2168.JP) is a long investment opportunity due to its ownership of a majority stake in Benefit One (2412.JP), which is the subject of a bidding war between M3 (2413.JP) and Dai-Ichi Life (8750.JP).
• Potential bids for Benefit One could result in a significant cash windfall for Pasona, estimated at around 50% more than its current enterprise value, as well as an operating business valued at an additional 50% of its current EV.
• With the founder of Pasona being 71 years old, the bidding war could lead to a management buy-out or a substantial return of capital program for the company.

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.

• Nidec reported a solid set of quarterly numbers, except for another huge structural loss in its EV business. 
• Nidec saw sales growth and operating profitability improvements in all other segments
• We continue to think that Nidec is attractively priced at under 20x EV/ EBIT given structural growth drivers

• Until the “parent-subsidiary (affiliate) listing” is resolved, the value of parent company isn’t  usually reflected. If Keisei has some business interest in holding OLC shares, it’s responsible for explaining it.
• If OLC shares were mostly sold, there’d be nothing left for Keisei, which couldn’t find strategy for using cash, so the decision of not losing the growing affiliate isn’t bad.
• This small sale is to buy time until a clear growth strategy is found, but once the ratio of foreign shareholders exceeds 1/3, building time will likely become more difficult.

• Lasertec has dropped more than 20% in the past week and a half, but is still selling at more than 60x EPS guidance for FY Jun-24.
• Weak orders at ASML, disappointing guidance from TSMC and doubts about Intel’s equipment purchases cast doubt on Lasertec’s growth potential.
• Between December 2021 and June 2022, Lasertec’s share price dropped by more than 50%. Wait for Q3 results before reaching for a falling knife. 

• Shimano continues to reel from a slowdown in bike and fishing tackle sales post Covid
• 1Q operating profit beat the analyst consensus, but the upward revision to full year is minor and falls short of street estimates
• The stock has priced in an improving outlook. However, valuations are now looking full compared to historical levels. 

• In this insight, we look at the fundamentals of J-REITs.  We look at overall Japan real estate, interest rate impact, as well as industry dynamics
• We like logistics sector due to its strong industry fundamentals; we are more bearish on office as vacancy will see more fluctuation in terms of new supply
• On the back of valuation and industry fundamentals, we suggest LONG Nippon Prologis REIT and SHORT Nippon Building Fund

• On 19 April, Taiyo Co-CEO Brian Heywood told Bloomberg and Reuters they were considering three options to Brother Industries (6448 JP)’s tender for Roland DG Corp (6789 JP). 
• Taiyo’s options are bumping its offer, walking away or tendering into the Brother’s offer if it bumps and alleviates dis-synergies concerns.
• All three options are likely a ruse. Taiyo’s primary play is to frustrate and pressure Brother to withdraw its bid if it cannot get the Board’s recommendation.

• Value Act’s recent statement might suggest that they have prevailed and Seven & I Holdings (3382 JP) has yielded to their demands. However, the reality might be less straightforward.
• Value Act sought new market expansion, but Seven & I is focused on reinforcing its presence in existing, well-established markets.
• Given Value Act’s impatience, their acceptance of Seven & I’s plan for a 2026 Super Stores IPO, contingent on a business transformation, is unexpected.

• Postal price hike approved  swinging the Post business from a loss to a profit
• Cancellation of 7.36% of outstanding shares from the latest buyback
• Management Plan to be released in May will provide further details on improving ROE and PB

• We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads: Qantm Intellectual Property (QIP AU), Southern Cross Media (SXL AU), Azure Minerals (AZS AU), QV Equities Ltd (QVE AU), Hollysys Automation Technologies (HOLI US), Shinko Electric. 
• Lowest spreads: Chilled & Frozen Logistics Holdings (9099 JP), Roland DG Corp (6789 JP), Mma Offshore (MRM AU), Pact Group Holdings (PGH AU), Newmark Property REIT (NPR AU), Lawson.

• 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, Sichuan Baicha Baidao Industrial (2555 HK)‘s deal launch made it the first large HK IPO for this year.
• On the placement front, Vodafone Idea (IDEA IN) deal was live. Also there are lockup expiries in Kokusai Electric (6525 JP) and J&T Global Express (1519 HK) coming up. 

• S&P 500 looks vulnerable. Maintain large cash positions for forseeable future.
• US Dollar bull flagging and may put pressure on equities in near term.
• Nikkei at inflection point. Bulls must stand up here to defend.

• Shift Inc (3697 JP) ’s share price has been down more than 50% YTD with the release of 1QFY08/2024 results in January 2024 which saw a drop in margins.
• The company’s aggressive investment in HR and system reinforcement led to a decline in margins, however, margins saw a QoQ improvement in 2QFY08/2024.
• Despite there being an improvement in 2Q and the company expecting the margins to bounce back in 4Q, Shift’s share price has continued to fall.

• Stricter voting standards for domestic investment managers seem aimed at increasing value through engagement for companies that show little improvement in efforts to improve stock price and return on capital.
• Stricter voting standards for policy shareholding ratios of domestic investment management companies are expected to push companies to consider reducing cross-shareholdings. Reference to deemed shareholdings is also commendable.
• Since engagement of overseas investors has been effective in increasing value of companies, engagement by Japanese investment managers more seriously than before will contribute to enhancing the value of companies.

• Pasona (2168 JP)will pay out 10-20% of the extraordinary gain from the Benefit One (2412 JP) sale. It will take its sweet time doing so. For no apparent reason.
• Hang Lung Properties (101 HK)‘s first-ever scrip dividend provides the means for the Chan Family to indirectly chip away at minorities. 
• Hollysys Automation Technologies (HOLI US) accountant resignation announcement is a nothing burger. An  update on PRC regulatory approvals would be welcome about now though. 

• USDJPY is breaking 154, almost 20-year high.  In general, weaker Yen is positive for investment in real estate as properties look cheaper from a foreign investor perspective
• Yen weakness is also positive to tourism in Japan, as weak currency will drive tourist arrival and boost tourism
• We like Japan Hotel REIT on the back of attractive valuation and weaker Yen.  We also like other Japan RE names like 8801 and 8802

• The Financial System Report published on April 18th focuses on the key Japanese bank issues, including the prospect of domestic rate hikes
• We focus primarily on the key take-aways from the BoJ report, in particular with relation to potential rate hikes; our key picks appear to be better geared than the average
• We highlight Resona, Mizuho and Concordia in the bigger caps, with positive views on Suruga, Gunma and Tokyo Kiraboshi in the regional banks

• The problem lies in the fact that even with a 10% increase in net profit, ROE only grew by 0.5%. This is due to having too much cash on hand.
• TSE has provided an opportunity for companies to develop measures to increase their corporate value. However, not many companies can derive concrete ways to effectively use cash.
• Since many companies are expected to take time to find concrete solution to this problem, an increasing number of companies are expected to go private once they have done so.

• Kondotec Inc (7438 JP) is a wholesaler of construction materials in the same league as companies such as Okabe Co., Ltd. (TSE PRM: 5959).
• In FY03/23, sales amounted to JPY75.4bn (+14.1% YoY), operating profit came to JPY4.4bn (+21.2% YoY), recurring profit was JPY4.6bn, and net income attributable to owners of the parent was JPY2.4bn.
• Kondotec Inc. announced changes to its lineup of representative directors (a change of president).

• Shinko Electric Industries (6967 JP)‘s pre-conditional tender offer from the JIC alliance is JPY5,920 per share. The gross spread widened from a low of 3.1% on 14 March to 7.0%. 
• The widening spread can be attributed to China SAMR approval timing, earnings risk, Ibiden Co Ltd (4062 JP)’s material underperformance lowering the break price and a large fund liquidating positions. 
• The deal break risks remain low with the timing remaining the key risk. The current 7.0% spread is an attractive opportunity to add. 

• Inageya Co Ltd (8182 JP) announced a share exchange offer by United Super Markets (3222 JP) at 1.46 USMH shares per Inageya share.
• The share exchange aligns with Aeon Co Ltd (8267 JP)’s well-flagged intention of making Inageya a wholly-owned subsidiary of USMH.
• Aeon’s 50%+ shareholding in Inageya and USMH facilitates the two EGM votes. The deal metrics are broadly fair for both sets of shareholders. 

• Arm – which we estimate accounts for 45% of SoftBank group’s equity value – is experiencing limits to its “growth at any price” stock status; the shares fell 12% yesterday
• The JPY’s depreciation is supportive of the group NAV, but with the Fed’s hawkish stance well known and BoJ expected to raise interest rates, JPY weakness may be largely done
• SoftBank shares trade at a wide 53%+ discount to the estimated NAV; yet we see downside risks to Arm’s valuation, along with the potential for JPY weakness to reverse

• When this deal was announced, it was light. But the timing, JSR influence, large-ish float, ensured FUD would make this trade wide. It traded wider. 
• 12wks ago, Shinko had much-underperformed peer Ibiden, meaning downside gap risk from undisturbed was negative as spreads were wide. I reco’d a buy. Then 5wks ago, reco’d trimming.
• Shinko had outperformed Ibiden, and gross spreads had come in 5+% on JSR’s approval. Spreads are now 3% wider than their narrowest, but gap risk has widened as Shinko outperforms.

• Today after the close, the results of the JSR Corp (4185 JP) Tender Offer were announced. Bidco JICC-02 obtained 84.36% of the shares out in the Tender Offer. 
• That means imminent index downweights, delayed index downweights, and theoretically another selldown on the last day of listed existence. 
• News which came up since the start of the Tender Offer make this a little more difficult than it might have otherwise been. 

• Since “profitability of capital” like ROE or ROIC cannot create value in mid-to-long-term without improvement, the fact that ROE has stalled is a cause for concern for future stock prices.
• The slow growth in Net Profit Margin and the sluggish improvement in Asset Turnover and Financial Leverage indicate that it is still holding too much cash, cross-held shares, etc. 
• Nearly half of all listed companies are companies with major shareholders of 20% or more, which is an obstacle to improving corporate governance.

• In this insight, we explore Mitsubishi Estate, who is the second largest real estate company in terms of market cap
• Mitsubishi Estate major business is in office (Tokyo CBD), residential/condo, as well as some retail and hotel
• Japan stock market is upbeat and saw the largest inflow among Asia YTD.  8802 valuation is not demanding.

• Nexon is a leader in the video game virtual worlds industry with an enterprise value of $11.4 billion
• The company has consistently high EBIT margins and a robust portfolio of popular franchises that have generated billions in revenue
• Despite being undervalued by the market compared to its peers, Nexon is poised for significant growth and offers potential for future success for investors

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.