Japan

• Last autumn, Kokusai Electric (6525 JP) was IPOed by KKR. The lockup expires next week, on 21 April 2024 (a Sunday). That frees up about 70% of the stock.
• KKR’s own stake is worth about US$2.8bn. It is not clear that Applied Materials, Qatar, or the Koch Strategic Platforms stakes would be for sale (now, or near-term).
• There is an interesting schedule of events between here and a likely offering date. It pays to pay attention to the details. 

• In the mid-late teens, four refinery groups merged to create two refinery groups – JX and Tonen General became JXTG under ENEOS Holdings (5020 JP) and Idemitsu took over ShowaShell.
• When Idemitsu got ShowaShell, it got 50+% in Toa Oil Co Ltd (5008 JP), 6.58% of Fuji Oil Co Ltd (5017 JP). In 2020, they tried to buy in Toa.
• That was delayed by an activist. Today, Idemitsu announced they had gone to 23% in Fuji Oil. That stake will go up before it goes down.

• Nidec’s share price rose by 7% on the largest volume day of the year and on a day where the Nikkei declined by 2%.
• The move followed an announcement that Nidec will enhance its CDUs production line in Thailand by 10x by June 2024. CDUs are used to cool AI servers in data centres
• The market impact of 250 billion yen implies a sales impact of 69 billion yen, which is far too high for 24,000 units per year

• Leading furniture retailer Nitori recently announced it would work with French platform developer Mirakl to build an online marketplace. The site will be available late 2024 or early 2025. 
• Nitori wants the mall to contribute 20% of revenues by 2032 within a sales target of ¥3 trillion, when overseas store numbers are expected to be double those in Japan.
• But, founder Akio Nitori says he wants to see overseas sales much higher than official targets and may well get there through close targeting of the rising Asian middle class.

• During the period under consideration, i.e. February 28th 2024 to March 29th, 2024, the USD/JPY pair fluctuated between 146 and 152 Yen per 1 Dollar.
• The MA-10 line at the beginning of the period considered was moving above the MA-20 line.
• From March 7th until March 22nd the MA-10 line trend changed and was moving below the MA-20. 

• JTEC Corp is a specialist technology innovator, and a global market leader in customized X-ray mirrors used in synchrotron radiation and X-ray free-electron laser facilities worldwide.
• With its competitive advantage in technology through high R&D spending and strong partnerships with academic and research institutions, the company is switching back to a robust growth trajectory driven by 1) normalized business conditions post- COVID-19,
• 2) new construction and upgrade demand for synchrotron radiation facilities, particularly from China, and 3) business expansion in the life sciences and semiconductor sectors.

• Rorze exceeds expectations in FY2/24 with a 6% revenue beat and an 11% surpass in operating profit, setting a record-high revenue of 28 billion yen in 4Q FY2/24.
• FY2/25 revenue guidance of 120 billion yen marks a 12% beat against analyst estimates, with operating profit expected to hit 32 billion yen, outperforming expectations by 10%.
• Rorze’s stock, though no longer deeply undervalued, remains reasonably priced at 16.5x NTM EBIT, indicating strong potential for earnings growth-driven future upside.

• TSE officially announced that it will request prime market listed companies to simultaneously disclose two documents, financial statements and timely disclosure information, in Japanese and English from April 2025.”
• Given the characteristics of Japanese companies, which tend to implement only minimum requirements, few companies will engage in English language disclosure in their annual securities reports, which wasn’t explicitly stated.
• Rather than improving the quality of the market to make it easier for global investors to trade, TSE has set efforts targets to match the speed of the slowest ship.

• KKR raised around US$730m via selling some stake in Kokusai Electric (6525 JP) Japan IPO in Sep 2023. Its remaining stake will be released from its IPO linked lockup soon.
• KE main business activities consist of the manufacturing, sales and maintenance service of semiconductor manufacturing equipment.
• In this note, we talk about the upcoming lock-up expiry and possible deal dynamics.

• During the period under consideration, i.e. February 28 th , 2024 to March 29th, 2024, the USD/JPY pair fluctuated between 146 and 152 Yen per 1 Dollar.
• The MA-10 line at the beginning of the period considered was moving above the MA-20 line. From March 7 th until March 22 nd , the MA-10 line trend changed and was moving below the MA-20.
• By the end of the examined period, the MA-10 line ended up above the MA-20 line.

• On Friday, Pasona Group (2168 JP) announced its expected use of funds into the May 2024 results, including a special dividend plan, investment for growth, and “strengthening the operating platform.”
• The plan will disappoint. The stock may get hit hard. The truth is somewhere in the middle. This is where active stewardship matters. So get stewarding.
• A special div paid over 5yrs should be paid one-shot, now. If the company has plans worth supporting, set KPIs now, ask for money later. Good plans get good money.

• With HK/China continue to see risk-off sentiment; we switch our focus to Japan.  Nikkei is up 19% YTD, one of the best performing markets in the world
• Among Japan real estate names, Mitsui Fudosan is a well held name with the largest market cap.  8801 is up 45% YTD while 8802 is up 57% YTD
• Valuation is un-demanding, it is an interesting name to own if investors want exposure to Japan.  It is still not too late to chase the rally

• Money Forward reported Q1 results. Net sales rose 40% YoY to 9.5 billion yen
• Money Forward saw a big jump in profitability, which puts the company on track to meet full year guidance
• The stock has risen around 30% since January. We still see around 7% upside to our target valuation 

• Taiyo Pacific’s Tender Offer for Roland DG Corp (6789 JP) was to end Friday, but it was extended 10 days. 
• Roland DG provided an update regarding the status of the Brother overbid. It did not show as much strategic-mindedness as it might have.
• Shares are now trading at a post-overbid high. Strategic missteps up the risk but Brother can pay more.

• 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.
• Two new deals discussed on Smartkarma this week: Madison Dearborn’s low-balled Offer for APM Human Services (APM AU); and NTT Data Corp (9613 JP)‘s Offer for Jastec (9717 JP).
• Key updates took place on: Boral Ltd (BLD AU), Azure Minerals (AZS AU), Genex Power (GNX AU), JSR Corp (4185 JP), Chilled & Frozen Logistics Holdings (9099 JP), & Lawson (2651 JP).

• 9 weeks ago, the FT reported Elliott Management had a stake in Mitsui Fudosan (8801 JP) and had asked them to sell cross-holdings and do a ¥1trln buyback. Mitsui responds.
• Lawrence Ho is buying Melco(200 HK). While it often pays to follows where the family invests, Melco is trading too tight for what is a simple holding company structure.
• Avoid being long Aozora Bank Ltd (8304 JP) vs the Banks Index, a portfolio of other cheaper banks, etc. Minimal/negligible upside in following Murakami-san here. And Activism on Banks is difficult.

• Since 2020, there has been a divergence between P/B and TOPIX movements, complicating matters for listed companies that have been asked to raise their P/Bs.
• Expectations are high for a rise in ROE, which has a certain correlation with nominal GDP, which is also increasingly correlated with TOPIX, as deflation exits.
• If price pass-through fails, escaping deflation may not lead directly to higher profit margins. If profit margin increase is insufficient, reducing cash on hand is essential to increase ROE.

• Several days ago I published a piece showing the data for TOPIX flows for April month-end.
• This is an update reflecting new data companies have reported to regulators, one large correction to a data provider’s data, and one Very Large Flow.
• I believe that the revised data is more accurate. And there is more flow. With a spreadsheet attached. 

• The Nikkei 225 Index last week bounced back, after a 2-weeks down pullback.
• The index is at a fork in our view: it could go higher from here, but we would like to see a sustained, multi-week rally to be convinced.
• If doubt about this potential rally continuation is strong, target the 40500-40800 price area to place SHORT trades against the index.

• Nitto Kogyo Corporation (Nitto Kogyo) is a leading manufacturer of distribution boards and panel boards for electrical and telecommunications infrastructure, as well as enclosures that house telecommunications and precision equipment.
• The company has 45 sales offices and nine factories in Japan, including the new Seto Plant, which will begin operating in spring, 2024, and is working to expand its business in ASEAN countries, with overseas production and sales bases in China, Thailand, and Singapore.
• In the renewable energy field, the company is focusing on EMS-related businesses such as solar power generation systems, EV recharging stations, and self-contained industrial solar power storage battery systems.

• 9 weeks ago, the FT reported Elliott Management had a stake in Mitsui Fudosan (8801 JP) and had asked them to sell cross-holdings and do a ¥1trln buyback. 
• The stock popped 7% the next day to ¥1302, on the highest volume since the covid crash, hesitated a day, then powered almost 20% higher through the end of March. 
• Today, Mitsui Fudosan responded with an Amendment to their Plan out to 2030. It has a higher dividend, a share buyback, higher EPS target growth, and higher ROE target. But…

• Fast Retail missed analyst estimates for Q2 sales and operating profit. Revenue growth slowed to 5% YoY
• Full year operating profit guidance maintained at Y450 billion, just slightly below the street 
• The stock is trading at 27x EV/EBIT, in-line with historical averages, but still expensive in absolute terms and versus global peers

• Net profit per listed company increased 4.4 times over the 33 years from 1989 to 2023, which means only a modest 4.5% annual growth.
• The reason why ROE has been sluggish since FY 2005 is due to the slow growth of Net Profit Margin, the decline of Asset Turnover, and the flat financial leverage.
• When the escape from deflation becomes a reality, the key is to have products ready to pass on prices, and defense by cash alone is not sufficient for this purpose.

• Just under 6 weeks ago, Japanese activist Murakami-san’s company and daughter reported a 5+% stake in Aozora Bank Ltd (8304 JP). They bought after a sharp dip caused CRE-related writedowns. 
• As is normal, they bought more (now 8.92%) post-5%-filing-trigger, but before the actual first filing. And as is normal these days, the stock popped on the first filing.
• Then it fell, and hasn’t recovered much. So far, on a weighted basis, they are up 1% vs TOPIX Banks Index. 

• The Chilled & Frozen Logistics Holdings (9099 JP) Board has responded with several questions regarding AZ-Com Maruwa Holdings (9090 JP)’s pre-conditional hostile offer of JPY3,000 per share.
• The Board questions the transaction’s schedule, terms and potential synergies. The Board has also used the ruse that due diligence access would justify a higher offer price.
• Expect several rounds of Q&A and a delay to the tender start. If shares continue trading through terms ahead of the tender start, AZ-COM Maruwa will likely have to bump. 

• The Japanese Financial Services Agency has asked the general insurers to reduce/eliminate their cross-shareholdings.
• Sompo Holdings (8630 JP) had a stake over US$100m in at least 16 listed Japanese stocks, amounting to a total of around US$6bn.
• In this note, we take a look at its stakes in various companies to see which ones could possibly be candidates for further selldowns.

• Trial, the discount FMCG and retail technology company, completed its IPO last month, achieving an initial market capitalisation higher than most of its rivals in the supermarket sector. 
• If forecasts for FY2023 are achieved, it will become the 5th largest chain in the country and its proprietary technology should give it an important advantage in the medium term.
• But its position at the centre of the fast-growing discount sector will drive the real growth, and the Kyushu-based firm will emerge as challenger to leading retailers.

• Amvis Holdings Inc (7071 JP) opened 57 facilities during FY20–23, which raised total borrowings 37% YoY to ¥17B in FY23 and further to ¥19B at the end of Q1FY24.
• The impact of the monetary policy is expected to be immaterial based on the current interest incidence of just 0.44%. Interest expenses account for less than 1% of revenue.
• Amvis started FY24 on a solid note, with all key parameters reporting more than 30% YoY growth in Q1FY24. The company has reiterated full-year FY24 guidance.

• Every year in April there is an interesting phenomenon with TOPIX. It is what Janaghan Jeyakumar, CFA calls “The Big April Basket.” The TSE re-assesses Liquidity Factor Coefficients.
• It also does a FFW change, and this year it has Phased Weight Reductions for those slowly leaving TOPIX and PWR re-inclusions for those identified last October as going back.
• Janaghan had 18 “High Conviction” LF removals. All were hits. They are upweights. Then there are 34 changes to FFW coefficients.

• Nominal GDP grew 1.8% from 2012 to 2017, higher than the annual average over the past 33 years, in anticipation of an escape from deflation, but TOPIX gains have stalled.
• Nominal GDP from 2021 to 2023 will grow 3.8% per year, far above the average of the past 33 years, and the correlation with TOPIX is even higher.
• With average P/B showing little correlation with TOPIX after 2020, expanding nominal earnings without losing out to rising prices seems to be a more important factor for stock price appreciation.

• Jade Group has acquired Magaseek and will merge the online mall with its own fashion e-commerce platform, Locondo and hopes to create a growing rival to Zozo.
• Magaseek was founded by Itochu 20 years ago, and the deal underlines Itochu’s growing influence over Jade as a proxy for its ambitions in fashion e-commerce and distribution.
• However, Jade Group has seen little organic growth for its Locondo platform in recent years, and while its acquisitions have added scale, integration has been haphazard.

• On the surface, FY23/12 consolidated OP -68% YoY, profit ATOP -53%, and FY24/12 initial guidance for a profit ATOP net loss may appear to indicate a challenging earnings environment.
• However, closer examination reveals steady earnings improvement, and the new MTP through FY26/12 targets recouping major overseas growth investments.
• The table below shows sequential improvement in the amount change YoY for Group EBITDA, OP and profit ATOP every quarter, with profits at all 9 levels posting YoY gains in the 4Q.

• Today, cram school operator Riso Kyoiku (4714 JP) and 20% owner real estate developer Hulic Co Ltd (3003 JP) amended their Capital and Business Alliance agreement. 
• Hulic will buy 25.5% of shares out in a Partial Offer at +43.5% vs last. Then post-tender, they will buy shares at last from the company to go to 51.%
• The founder will sell his 10%. The rest is interesting. It’s a high ROE high div stock. Some own it from higher. Pro-ration is tough to estimate. But we try.

• Riso Kyoiku (4714 JP) announced a partial tender offer and third-party allotment with Hulic Co Ltd (3003 JP), the largest shareholder. Hulic aims to make Riso Kyoiku a consolidated subsidiary.  
• The offer is for a maximum of 39.4 million shares (23.15% post-allotment ownership ratio) at JPY320 per share, a 46.8% premium to the undisturbed price (5 April).
• Irrevocable (from the founder and Chairman) represents a 9.26% post-allotment ownership ratio. The offer is light, but there is no minimum acceptance condition. 

• The March 2024 rebal is done and dusted. When announced, there were 2 prospective DELETEs for Sep 2024. Now there is only one expected DELETE, Nippon Paper Industries (3863 JP). 
• The one likely inclusion is therefore Ryohin Keikaku (7453 JP). But there is more fun afoot with Fast Retailing (9983 JP) and Tokyo Electron (8035 JP). 
• The two stocks – of totally different sectors – interact somewhat, both in determining Nikkei 225 direction, and their relative potential selldowns. 

• NTT Data Corp (9613 JP) on Friday announced a Tender Offer to take over small custom software developer and system integrator Jastec Co Ltd (9717 JP). 
• It’s at a premium. But for a growing company ahead of “The 2025 Problem” where synergies are expected, you’d want to get a premium vs where comps trade. You don’t.
• But this gets to near 50% just from friendlies. Someone who wanted to interfere would have to be publicly noisy. I expect this gets done.

• 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: Jastec Co Ltd (9717 JP), Qantm Intellectual Property (QIP AU), Southern Cross Media (SXL AU), Genex Power Ltd (GNX AU), QV Equities Ltd (QVE AU), China TCM.  
• Lowest spreads: Roland DG Corp (6789 JP), Tietto Minerals Ltd (TIE AU), Newmark Property REIT (NPR AU), Mma Offshore (MRM AU), CPMC Holdings (906 HK), Pact Group Holdings (PGH AU). 

• AAOI recommends investing in Nintendo ahead of the launch of the Switch 2 console cycle in mid to late 2024
• Analyst sees potential for multiple expansion, margin improvement, and continued monetization of intellectual property through theme parks and movies
• Bullish on Nintendo’s stock in absolute terms and relative to other companies in the video game and media sectors, predicting significant gains based on past launch cycles.

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.

• ETF sale is pie in the sky if the dividend income from ETFs held by BOJ is used to cover the interest payments associated with lifting of negative interest rates.
• ETFs held by the Bank of Japan, which account for 7% of prime market capitalization, are actually reducing the number of actual tradable shares and hindering trading liquidity.
• Furthermore, ETFs held by BOJ, which don’t indicate their intention to be shareholders, may be voting in favor of the company’s proposal as new silent shareholders in place of cross-shareholdings.