Japan

• Jastec Co Ltd (9717 JP) has recommended a tender offer from NTT Data Corp (9613 JP) at JPY1,940 per share, a 37.6% premium to the undisturbed price (5 April). 
• 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 66.67% ownership ratio.
• Based on the irrevocables, the minimum acceptance condition requires a 56.4% minority acceptance rate. The acceptance condition is achievable as the offer represents a 22-year high.

• While more companies should include the cost of capital in their disclosures, investors are demanding that management present specific solutions discussed by the board of directors to solve their company’s problems.
• Many companies with high foreign shareholding disclose their own management strategies, while companies without high foreign shareholding tend to lack the ability to think of measures to increase profitability.
• The TSE’s newly established department supports such companies to ensure that all listed companies are not left behind, but that seems to go against the quality of the market.

• 10+ Months ago, Suruga Bank Ltd (8358 JP) announced it would sell a large chunk of its treasury shares to Credit Saison and would then buy back ¥22bn of stock.
• I liked the odds in Suruga Bank (8358) To Sell, Then Buy Back 17% of the Bank, but HOW Is Key. They spent the ¥22bn. The stock rose a lot.
• Today, we get a div hike for H2 (implying a div hike for this year too), another buyback, a huge share cancellation, and new KPIs. As always, details matter.

• Nidec faces challenges amid global EV sales decline, with shares and valuations reflecting market pessimism.
• Anticipated catalysts include forthcoming guidance, potential MTP reassessment, and a strategic acquisition opportunity.
• At 18x EBIT, Nidec looks a compelling play on secular themes of electrification, automation, and energy efficiency.

• Major milestones with high expectations coming in the next 2-3 years: 1) Phase IIb US trials for H-1337 as “first choice as a second-line Glaucoma drug” for patients who do not respond to PGs
• 2) 2024 application/approval and 2025 launch of DW- 1002 in Japan, 2023 application and 2024 approval/launch in China, as well as orphan drug designation for combination formula MembraneBlue-DualⓇ (DW-1002 + trypan blue) in the US,
• 3) in Japan, start P2 clinical trials in 2024, P3 trials in late 2025 though 2026, and normal schedule application for approval for regenerative cell-therapy DWR-2206 in 2027

• Kokusai Electric (6525 JP)’s 180-day IPO lock-up period for 71% of outstanding shares expires on 22 April. The shares exiting the lock-up period are worth US$4.8 billion.
• The likely seller will be KKR & (KKR US) as it was the sole selling shareholder in the IPO. The shares are currently trading at 2.4x the IPO price.
• Kokusai anticipates a return to growth and margin improvement in FY24. However, Kokusai trades at a material premium to peer multiples and is fully priced. 

• The essence of the declining birthrate problem is the increasing number of young people who aren’t getting married, but the government has been mismatched in focusing support on married couples.
• Since the reasons for unwillingness to marry are “financial reasons” for men and “limitation of activities and time” for women, along with increased income, child-rearing and housework shouldn’t burden women.
• Companies should shift to business model that allows them to raise profit margins without resorting to cost-cutting, raise employee salaries, and create work environment that supports child-rearing and family responsibilities.

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.

• Gajah Tunggal
• Rakuten
• Road King Infrastructure
• SK Hynix

• In what is a surprising move to me, Murakami-san has gone substantial on JSR Corp (4185 JP) with the vast majority of his stake purchased at a spread of <0.05%.
• As suggested in JIC Launches a NOT-¥1trln Tender Offer for JSR (4185). Welcome? Yes. Overwhelming? Meh, the deal price was not overwhelming. It got less so as the market rose.
• But this is an odd target. High float. No competition. Would take a lot to block or force the bumpitrage, which suggests appraisal rights or a “technicality.” 

• Murakami’s City Index Eleventh entity reported a 5.11% position in JSR Corp (4185 JP). The share purchases started on 19 March, the day of the tender start.
• Murakami’s average buy-in price of JPY4,346.22 per share is broadly in line with the JPY4,350 tender offer. 
• Murakami’s disclosure suggests two possibilities: starting an activist campaign for a bump or pursuing the appraisal process to determine a fair value. We think the latter is likely. 

• 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.
• There were no Section Transfers announced in the last 3 months so currently there are no live TOPIX Inclusion events at present.
• There are currently 79 names capable of satisfying all the key section transfer requirements. Our long-term pre-event candidate CELSYS (3663 JP) is one of them.

• A couple of years ago, Rakuten (4755 JP) – burning through cash to start its mobile business – announced it would its Bank and Securities units. Bank listed. Securities didn’t.
• Mizuho ended up buying 49% of Securities. Today, it was announced there would be discussions to put Bank, Securities, Card, and Insurance in a new listed Holdco.
• How this works will end up being complicated. More complicated than it should be. But the complexity would make this more of a win-win for everyone. 

• For the month of March 2024, 8 new transactions (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$4bn.
• The average premium for the new transactions announced (or first discussed) in March was ~55%. The average premium YTD is ~39%.
• This compares to the average premium for transactions in 2023 (117 transactions), 2022 (106), 2021 (165), 2020 (158), and 2019 (145 ) of 39%, 41%, 33%, 31%, and 31% respectively.

• Market structure is the main factor hindering trading liquidity. In addition to the cross-holdings that remain, ETFs held by the Bank of Japan cast a shadow over trading liquidity.
• Companies are key on this issue. In addition to accelerating to reducte cross-shareholdings, English-language disclosure of annual securities reports, which are in high demand by long-term investors, should be promoted.
• If long-term overseas investors get serious about investing in Japanese equities, the increase in trading liquidity in Japanese equities will be sustainable, and broker coverage will naturally expand.

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.

• Kawasan Industri Jababeka
• Rakuten
• Tata Motors ADR

• In mid-January, the TSE announced a “name-and-shame” list where they listed all the companies which had put forth a disclosure about 【資本コストや株価を意識した経営の実現に向けた対応】. But they did not actually shame.
• The list shows which companies have disclosed a policy/consideration. But no data/links. We have the links, and we are weeks ahead of the TSE. Working to get months ahead.
• We created a tool to name everyone, show their reports, provide links, and now a new tool. Put in a name, see the difference between the Old/New Reports.

• Characteristic of companies TSE introduced as good disclosure examples is that they include more companies with a high foreign ownership and those that pay relatively close attention to cash allocation.
• Not all companies that are good examples have increased their valuations noticeably compared to before TSE market restructuring, but TSE has chosen them based on the content of their initiatives.
• These companies didn’t create their cash allocation policies abruptly, but had more opportunities to think through cost of capital, return on capital and stock price through engagements with overseas investors.

• I tally 53 – 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 were  discussed this week on Smartkarma: MMA Offshore (MRM AU)‘s  Scheme with Singapore’s Cyan Renewables; and Sciclone Pharmaceuticals (6600 HK)‘s Scheme.
• Key updates took place on: Boral (BLD AU), Orecorp (ORR AU), Lawson Inc (2651 JP), CPMC (906 HK), CIMC Vehicle (1839 HK), Roland DG (6789 JP), and Welbe (6556 JP).

• 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: Bharti Hexacom (6597372Z IN) and Lianlian DigiTech (2104619D CH) IPOs.
• Event-Driven developments: Lawson Inc (2651 JP), Roland DG Corp (6789 JP), Sciclone Pharmaceuticals (6600 HK), CIMC Vehicle Group Co Ltd (1839 HK), HKBN Ltd (1310 HK), Probiotec Ltd (PBP AU). 

• We knew this was coming. We did not know HOW it was coming. The news today has to be seen as a bit of a disappointment.
• Why is it a disappointment? Toyota Industries (6201 JP) is not buying back a big chunk, and there is no offering to oblige new investors to take a look.
• This is long, slow, leakage on a company which is not overwhelmingly cheap, where it requires good governance to get out well, and even then…

• With a new Medium-Term Management Plan and a buyback, the stock was cheap as of Thursday’s close. It was less cheap after it went limit up +25% on Friday.
• That put it in the camp of “it may go up more but probably not a lot”. It has told you about big divs and buybacks.
• But model it up and they need to do more buybacks. Both to meet share price gains and the needs of legions of potential cross-holders looking to sell. 

• Overseas investors tend to invest in companies with large market capitalization and high profitability, resulting in higher stock price valuations. They also tend to avoid investing in listed subsidiaries.
• Since companies with over 20% foreign ownership show superior board practices, it’s reasonable to assume that board practices improve as foreign ownership increases and the influence of overseas investors increases.
• Companies with more than 30% foreign ownership have many items that generally show excellent values in Key Actions. However, all companies still face challenges in cash allocation.

• Addressing selling activity by organizational change – Q1-2 FY7/24 results demonstrated double-digit sales growth of 41.5% YoY via underlying growth at the parent business and acquisitive impact from DICS Holdings.
• However, the overall pace of growth was lower than expected, with INTLOOP experiencing lower-than-planned productivity from newly hired sales representatives.
• The company has addressed this by implementing a new and reinforced organizational structure in H2 FY7/24 by recruiting senior management (partner and managing director class) to drive sales activities as well as customer acquisition and increasing overall market coverage. 

• Koito Manufacturing (7276 JP) is a $4bn marketcap (~$6bn sales) Toyota Group auto parts manufacturer specialising in lighting parts, famous for being a T.Boone Pickens target in the 1980s.
• As Toyota Group’s leaders restructure their cross-holdings and try to get to 1.0x PBR and a high enough ROE to sustain it, capital efficiency is on the block. 
• Koito today announced a revised Mid-Term Management Plan, a change in KPIs (higher), a large shareholder return plan, and a large buyback. As always, the fun is in the details.

• JPX-Nikkei 400 is composed of common stocks listed on the Tokyo Stock Exchange. It is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents, adjusted every year in August.
• We look at the rankings of the potential ADDs/DELs every month for the next rebal, based on most recent trading data. 
• Every month we provide trade suggestions. The last three months have seen market-neutral returns of +3.0%, +6.5%, +3.2% respectively for the one-month periods. A new trade is suggested below.

• Despite Rakuten Bank shares’ re-rating, we believe it remains attractive, with its strong balance sheet and its low cost base with undemanding valuations compared to its Asian digital banking peers
• Rakuten Bank is well positioned to benefit from the negative interest rate policy exit in Japan, with its low LDR, high cash balances, growing loan book and healthy capital ratio
• It continues to leverage off the Rakuten Group eco-system, as a low cost source of new customers; nearly a third of clients use Rakuten Bank as their primary Japanese bank

• 50% mobile market share with scope to improve shareholder returns – Okinawa Cellular is the operating company for parent KDDI’s (9433) mobile and FTTH brands in Japan’s southernmost prefecture, with a dominant 50% mobile carrier market share.
• The company benefits from the parent’s centralized R&D initiatives limiting its costs, and economies of scale through the joint procurement of handsets.
• With sector-leading operating margins and a strong track record of free cash flow generation, management actively allocates capital to shareholder returns, resulting in an estimated total shareholder payout ratio of 127.8% for FY3/24. 

• KDDI has announced the launch tomorrow of its Tender Offer to buy out the minorities in Lawson Inc (2651 JP). 
• It’s still too cheap. It is still a somewhat non-transparent and unfair process as far as I can tell. And it does not adhere to the METI Fair M&A Guidelines. 
• There SHOULD BE some activist interest to get KDDI to bump but it is not clear that will show up. 

• Lawson Inc (2651 JP) has announced that the pre-condition for the KDDI Corp (9433 JP) tender offer is satisfied. The offer terms are unchanged at JPY10,360 per share. 
• The offer is arguably light due to the market re-rating, does not reflect significant synergies and is below the midpoint of the IFA DCF valuation range. 
• Nevertheless, the offer will likely succeed as it represents an all-time high, with no vocal opposition, an achievable 30.2% minority acceptance rate, and the shares never trading through terms. 

• While domestic revenues may have slowed, Uniqlo’s domestic OP shows upside potential driven by upside to GM and a gradual reduction in SG&A expenditure.
• Simultaneously, Uniqlo International is exhibiting strong performance, with anticipated revenue and OP growth of 21% and 30% YoY respectively.
• Despite expecting a strong earnings beat, concerns over high valuations and index issues make us cautious about trading Fast Retailing (9983 JP) in the current earnings cycle.

• MHI’s share price has risen more than 60% year-to-date and nearly tripled over the past 12 months on the improving outlook for Japanese defense contractors.
• A huge increase in new orders, prospects for a doubling of sales and a rapidly rising operating margin on Aircraft, Defense & Space have been factored into the price.
• The shares do not look expensive compared with international comparables, but neither are they particularly cheap. Potential problems, from Japanese defense budget constraints to production glitches, have been ignored. 

• The med-tech sector is ripe for consolidation. Smaller players like Hogy Medical (3593 JP) , and Eiken Chemical (4549 JP)  exhibit sub-par growth and lagging valuations
• Activist investors like ValueAct Capital, Dalton and Asset Value have recognized an opportunity for growth and potential M&A
• Both Hogy and Eiken trades at a deep discount to larger domestic peers and stand to benefit the most from any consolidation

• Although unavoidable under the provisions of Broadcasting Act, the fact that the right to receive dividends as interest-bearing securities was inhibited was problematic in terms of fairness with other shareholders.
• NTV Holdings, which has ignored this issue, changes its policy, which is a positive impact of “TSE’s request,” but NTV’s seriousness can be measured by whether it raises its ROE.
• If the intention is to leave cross-shareholdings intact and attract overseas investor purchases through some share repurchases, there would be little prospect of a serious increase in ROE.

• In one of many ventures in response to the 2024 logistics problem, Familymart began an experimental collaboration with Coca Cola Bottlers in February, seeking to reduce delivery frequency in Kanagawa.
• It is also streamlining its business, selling both its gyms and laundries recently.
• While unlisted, its ongoing innovations provide an insight into the wider convenience store sector.