Japan

In today’s briefing:

Thinking About Topcon (7732) And the New METI-Enabled Bad Cop-Good Cop Routine
TOPIX Inclusions: Who Is Ready (Dec 2024)
EQD | The Nikkei’s Wavering Trend: LONG Investors Should Brace For A Pullback.
Poletowin Pitcrew Holdings (3657 JP): Q3 FY01/25 flash update
i-mobile Co Ltd (6535 JP): Q1 FY07/25 flash update
Torex Semiconductor (6616 JP) – Q2 Follow-Up

Thinking About Topcon (7732) And the New METI-Enabled Bad Cop-Good Cop Routine

A Bloomberg article today said Topcon Corp (7732 JP) is weighing takeover bids received from KKR and EQT. ValueAct has been pressuring the company for 18mos (5+% in May23)
ValueAct has apparently been pushing the company to divest assets and concentrate on core ops, or go private (and have someone else do it).
This is further evidence of the METI-enabled “Bad Cop-Good Cop Routine” which could expand M&A and governance activity dramatically.

TOPIX Inclusions: Who Is Ready (Dec 2024)

By Janaghan Jeyakumar, CFA

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.
Reently-Listed Tokyo Metro (9023 JP), Rigaku Holdings (268A JP), and Intermestic (262A JP) were added to the TOPIX index at the end of November 2024.
Our long-term pre-event candidate Japan Eyewear Holdings (5889 JP) has applied for a Section Transfer to the Prime Market which means there could be TOPIX Inclusion in the near future.

EQD | The Nikkei’s Wavering Trend: LONG Investors Should Brace For A Pullback.

By Nico Rosti

The Nikkei 225 Index continues its going nowhere trend: there is a pattern however in what it does and it’s quite repetitive as of lately.
While we don’t attribute predictive value to chart patterns, we do know that a flat trend sooner or later breaks out.
Our models see limited upside for the current range-bound mini rally (2 weeks in the making). Next we will have a pullback, and it could happen already after this week.

Poletowin Pitcrew Holdings (3657 JP): Q3 FY01/25 flash update

Revenue grew 10.8% YoY to JPY37.3bn, driven by Overseas Solutions order growth and yen depreciation impact.
Operating profit decreased 9.7% YoY to JPY634mn due to business liquidation expenses and additional game co-development costs.
Revenue from animation production increased YoY, but Media Contents faced a loss due to joint game development costs.

i-mobile Co Ltd (6535 JP): Q1 FY07/25 flash update

In Q1 FY07/25, the company reported revenue of JPY4.4bn, operating profit of JPY1.1bn, and net income of JPY720mn.
Consumer Service business revenue was JPY3.8bn, with a segment profit of JPY1.1bn, and promotion costs of JPY2.2bn.
Online Advertising business revenue was JPY644mn, segment profit was JPY34mn, and promotion costs were JPY114mn.

Torex Semiconductor (6616 JP) – Q2 Follow-Up

TOREX SEMICONDUCTOR announced 1H FY25/3 consolidated financial results at 16:00 on Thursday 11/14, and it held a results briefing on Tuesday 11/19 at 16:00.
Headline numbers were consolidated net sales -5.5% YoY, operating profit +277.2% YoY, and profit attributable to owners of parent turning into the black.
However, in a pattern similar to the three months for Q2-only last term, profits dropped into losses, from an operating loss of JPY 133 million for FY24/3 Q2 (OPM -1.9%) → an operating loss of JPY 28 million for FY25/3 Q2 (OPM -0.4%), partly reflecting the high electricity rates for Phenitec, citing the prolonged adjustment of distribution inventories due to a slowdown in demand for industrial equipment as well as general consumer electronics, and a pause in the recovery of the China market.

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Dec 10

Daily Brief Japan: Sanrio, Nikkei 225, ASKA Pharmaceutical Holdings Co Ltd, Mec Co Ltd, TSE Tokyo Price Index TOPIX and more

By Nippon Investment Bespoke Research UK

In today’s briefing:

Sanrio (8136 JP) Placement: Price Likely Determined Today; What Next?
EQD | Nikkei Index Options Weekly – Dec 02 – 06
ASKA Pharmaceutical (4886) | Healthy Returns
MEC Co., Ltd (4971 JP): Research Update Post FY24 Q3 Earnings
In Order to Avoid Scandals in the Future, Management Must Take Leadership in Changing Mindsets

Sanrio (8136 JP) Placement: Price Likely Determined Today; What Next?

By Brian Freitas

The Sanrio (8136 JP) placement is likely to be priced today. With the stock 8.8% lower from undisturbed, expect a small discount to today’s close.
The stock has traded as expected over the last 9 trading days – a sharp drop followed by a strong upward move and then profit taking.
We expect there will be strong interest in the placement and oversubscription could lead to upside from here. Shorts have increased and will look to cover into the placement.

EQD | Nikkei Index Options Weekly – Dec 02 – 06

By John Ley

Price action has been mired in a sideways range since hitting these levels in Feb 2024. Implied’s have come full circle and are at the same levels they were in Feb.
Option volumes over the past week look to be playing for a break above the sideways range of the last two months or a break below it.
Skew is very steep with heavy Put volumes and open interest at levels under the current range.

ASKA Pharmaceutical (4886) | Healthy Returns

By Mark Chadwick

ASKA Pharmaceutical Holdings represents an attractive investment opportunity with substantial upside potential
The company combines solid growth, strong profitability, and clear avenues for shareholder value enhancement.
With Nippon Active Value’s increasing involvement and the stock trading at deeply discounted valuations, ASKA is well-positioned for a re-rating.

MEC Co., Ltd (4971 JP): Research Update Post FY24 Q3 Earnings

The +118.3% YoY growth in FY24 Q1~Q3 operating profit [OP] of ¥3,649mil on sales of ¥13,682mil (+37.1% YoY)] was due to easy comps, rather than a full recovery, especially in demand associated with PCs and servers used in general data centre.
One of the growth drivers in FY24 is package demand associated with generative AI, to which MEC’s core products, CZ-8101 and CZ-8401 chemicals are used.
MEC has maintained its FY24 guidance for a consolidated annual dividend payment of ¥45/share.

In Order to Avoid Scandals in the Future, Management Must Take Leadership in Changing Mindsets

In many cases, management is involved rather than seeking clarification of the actual situation from an independent body. This is the reason why scandals are repeated.
In Japan, awareness of integrity and code of ethics compliance remains very low. A thorough awareness change is required to consider “what is ethical to do and what is not.”
Even after the revision of Whistleblower Protection Act in 2022, harassment of whistleblowers hasn’t stopped. Consequently, the number of whistleblowers is low and whistleblowing hasn’t been able to deter scandals.

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Dec 09

Daily Brief Japan: Kokusai Electric , Sanrio, TSE Tokyo Price Index TOPIX, Kioxia Holdings and more

In today’s briefing:

Quiddity Leaderboard Mar25 Nikkei 225 Rebal: 2 IN, 2 OUT, $5.5bn+ Fastie to Sell, $7bn a Side
Sanrio (8136 JP): The Current Playbook
“Parent-Subsidiary Listing” Heaven Continues to Provide Rich Investment Performance for Investors
ECM Weekly (9th Dec 2024) – Goodman, Auckland Airport, Kioxia, MNC, DIY, Vishal Mega, Mao Geping

Quiddity Leaderboard Mar25 Nikkei 225 Rebal: 2 IN, 2 OUT, $5.5bn+ Fastie to Sell, $7bn a Side

The Sep24 Nikkei 225 Rebal was odd. They could have done 3. They did 2. For now, I still see 2 IN and 2 OUT for the Mar25 Nikkei225 Rebal.
There is also a DOUBLE-capping event for Fast Retailing which on 8% outperformance could become a TRIPLE-capping event. For now, the trade is shaping up to be US$7bn a side.
There is still a tech bent to potential ADDs. Some Consumer Goods stocks need stock splits to get in. Longer-term, the TOPIX Methodology Rejig is an interesting problem set.

Sanrio (8136 JP): The Current Playbook

Since the announcement of the US$840 million secondary offering, Sanrio (8136 JP)’s shares have been down 3.9% from the undisturbed price of JPY5,160 per share (26 November).
It is instructive to look at recent large Japanese placements to understand the potential trading pattern. So far, Sanrio’s shares have followed the pattern of previous large placements.
The offering will likely be priced on 10 December. The average large Japanese placement tends to generate positive returns.

“Parent-Subsidiary Listing” Heaven Continues to Provide Rich Investment Performance for Investors

With the TSE shortly declaring the conclusion of discussions regarding parent-subsidiary listings, more parent-subsidiary listings (including listed affiliates) are likely to continue to appear going forward.
“TSE’s Request” states a restructuring of business portfolio, but leaves out the issue of restructuring the parent company’s business portfolio and shifting to a management approach that increases corporate value.
The parent-subsidiary listings (including listed affiliates) that continue to be created will continue to provide investment opportunities for investors, including activist investors.

ECM Weekly (9th Dec 2024) – Goodman, Auckland Airport, Kioxia, MNC, DIY, Vishal Mega, Mao Geping

By Sumeet Singh

Aequitas Research’s weekly update on the IPOs, placements, lockup expiry and other ECM linked events that were covered by the team over the past week.
On the IPO front, the deal flow doesn’t seem to be slowing down much into the year end. The coming two weeks will see some of the past IPOs listing.
On the placements front, Goodman Group (GMG AU)‘s block trade was hogging all of the limelight this week.

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Dec 08

Daily Brief Japan: Rakuten, Mitsubishi Logisnext Co., Ltd., Seven & I Holdings, Takigami Steel Construction and more

In today’s briefing:

Rakuten (4755 JP) – Trying To Goose The Stock Price Before Year-End or Mobile Sub Numbers for 2025?
Mitsubishi Logisnext (7105 JP): Mitsubishi Heavy Industries (7011 JP) Seeks to Exit
Last Week in Event SPACE: Seven & I Holdings, ESR Group, Sanrio, HKBN
Takigami Steel Construction (TYO 5918) – A Portfolio of Public Securities

Rakuten (4755 JP) – Trying To Goose The Stock Price Before Year-End or Mobile Sub Numbers for 2025?

Today, Rakuten (4755 JP) announced a new shareholder benefit (株主優待) program today, to reward shareholders as of end-December 2024. The stated goal? To “thank shareholders”…
…And provide more people with the opportunity to try out the benefits of Rakuten Mobile, with 1yr free of a 30GB/mo mobile plan. There are conditions, but it’s juicy.
Last year’s 3mo plan was given with one day of notice. This year’s larger full-year govt gets 3+wks. They are juicing the sub numbers for 2025.

Mitsubishi Logisnext (7105 JP): Mitsubishi Heavy Industries (7011 JP) Seeks to Exit

Mitsubishi Logisnext Co., Ltd. (7105 JP) shares rose 26% after the Nikkei reported that Mitsubishi Heavy Industries (7011 JP) is contemplating selling its 64.5% stake.
Logisnext confirmed the sale process. In a fair process, minorities should receive the tender offer price plus the proportionate share of Mitsubishi Heavy Industries’ TOB tax benefits.
Despite the rise in share price, Logisnext trades at a discount to peer multiples. At an offer of JPY2,000, Logisnext would trade in line with median peer multiples.

Last Week in Event SPACE: Seven & I Holdings, ESR Group, Sanrio, HKBN

By David Blennerhassett

Reportedly, Ito Junro’s MBO for Seven & I (3382 JP) includes a US assets IPO to help pay down MBO debt to Japanese banks. Possible strategic mistake by Ito-san here.
Starwood/Warburg Pincus’ firm Offer for ESR Group (1821 HK) secures support from 30.79% of the register.
We may be wrong on Sanrio (8136 JP) by a big factor but the multiple and the concentration risk of momentum factor means you are in an illiquid stock.

Takigami Steel Construction (TYO 5918) – A Portfolio of Public Securities

By Altay Capital

Company is marginally profitable and owns a portfolio of securities (mostly public stocks) and rental real estate worth ~3x its market cap (~¥18,000 /share vs ¥6,000 stock price).
These figures assign zero value to the operating business and its fixed assets.
Activist investor is the #1 shareholder with a 17.4%. #2 shareholder owns 11% and will likely align with activist. Insiders don’t own enough to easily block future activism.

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Dec 07

Daily Brief Japan: Mitsubishi Logisnext Co., Ltd., Frontier Management Inc, Medical Data Vision and more

In today’s briefing:

Mitsubishi Logisnext (7105) – The Next Target in Logistics Space?
Frontier Management Inc. (7038 JP) – Q3 Follow-Up
Medical Data Vision Co., Ltd (4971 JP): Research Update

Mitsubishi Logisnext (7105) – The Next Target in Logistics Space?

A Nikkei article this morning several hours pre-open said that Mitsubishi Heavy Industries (7011 JP) was preparing to sell its listed forklift subsidiary Mitsubishi Logisnext Co., Ltd. (7105 JP).
The story says “Investors had been pressuring Mitsubishi Heavy to spin off or delist Logisnext” and we know the TSE dislikes dual listings. I would have expected a buy-in but…
There are a number of reasons why a buyer could find this asset attractive. I suggest reading all the way through and the tone of the Conclusions.

Frontier Management Inc. (7038 JP) – Q3 Follow-Up

By Nippon Investment Bespoke Research UK

Frontier Management Inc. (hereafter, the Company) announced Q3 FY2024/12 results on November 13, 2024.
Cumulative Q3 sales in the Management Consulting Business remained strong at JPY 4,444 mn (+18.1% YoY), but other segments suffered.
The Revitalization Support Business posted sales of JPY 1,088 mn (-15.0% YoY), reflecting the completion of a major project.

Medical Data Vision Co., Ltd (4971 JP): Research Update

MDV revised down its full-year FY24 guidance (discussed in more details on p.5) given the Q3 result [Q1~Q3 gross profit [GP] of ¥3,055mil (-12.8% YoY), operating loss of -¥140mil (vs FY23 Q3 OP of ¥1,111mil) on sales of ¥4,125mil (-8.1% YoY)], due to (1) the delay to the onboarding of the firm’s cloud-based health check system solution Alpha Salus as the debugging process continued through to September, and (2) a delay in mobilising potential users of the new content (no-contact vital sensing for cats) for MDV’s personal health management app Karteco, as the planned large-scale advertising campaign was pushed back following a delay in the launch of the content.
The firm is guiding for FY24 annual dividend of ¥6.5/share (unchanged from FY23) and generates a dividend pay-out ratio of 138.0% based on the revised FY24 EPS forecast of ¥4.71.

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Dec 06

Daily Brief Japan: Seven & I Holdings, Shiseido Company, Paris Miki Holdings, Workman Co Ltd, Aoyama Zaisan Networks Co Lt, TSE Tokyo Price Index TOPIX and more

In today’s briefing:

Seven & I Holdings (3382 JP): The MBO Is Starting to Shape Up
Shiseido (4911) | Makeup for Lost Time: Shiseido’s Turnaround Strategy
Paris Miki Holdings (7455 JP): 1H FY03/25 report update
Workman Under Pressure
Aoyama Zaisan Networks Company (8929 JP) – Proactive Capital Allocation
Independent Directors Are Responsible for Disclosures that Have Gaps from the Investors’ Perspective

Seven & I Holdings (3382 JP): The MBO Is Starting to Shape Up

On 4 December, Bloomberg reported that the Seven & I Holdings (3382 JP) MBO is set to include plans for a US Assets IPO to raise more than JPY1 trillion.
The MBO faces two immediate challenges: securing financing and the Board’s approval. The US Assets IPO would help alleviate both these issues.
The potential market cap of US Assets is around US$24 billion, or 53% of 7&i’s market cap. The US Assets IPO should also encourage Couche-Tard to persist with its offer.

Shiseido (4911) | Makeup for Lost Time: Shiseido’s Turnaround Strategy

By Mark Chadwick

Shiseido’s stock price has dropped 70% from its post-pandemic peak, presenting a buying opportunity amid ongoing industry challenges.
The company’s two-year action plan aims to restore profitability through aggressive cost-cutting and restructuring measures.
Successful execution could drive significant upside, while failure may attract acquisition interest due to Shiseido’s strong Asia-Pacific brand presence.

Paris Miki Holdings (7455 JP): 1H FY03/25 report update

Sales increased 3.6% YoY to JPY26.1bn, while operating profit decreased 25.3% YoY to JPY1.2bn.
Japan segment sales rose 4.2% YoY to JPY23.2bn, driven by inbound demand and higher unit prices.
SG&A expenses grew 4.1% YoY to JPY16.5bn, with a 0.4pp increase in the SG&A ratio to 63.3%.

Workman Under Pressure

By Michael Causton

Workman was a purveyor of durable gear for workers in jobs like construction but then had the brilliant idea to transpose that expertise to create activewear like Decathlon.
This was working well but then it decided to take on the likes of Fast Retailing and Shimamura by moving into casual clothing.
Since then, same-store sales growth has been negative in many months and profits have fallen. The outlook is increasingly poor.

Aoyama Zaisan Networks Company (8929 JP) – Proactive Capital Allocation

By driving double-digit sales and OP growth at both Wealth Consulting and Real Estate Solutions during Q1-3 FY12/24, the company continues to demonstrate positive earnings momentum as well as its ability to ride the powerful trend in Japan’s aging demographics.
Management continues to show improvement in capital allocation by announcing an earnings- accretive acquisition of the Chester Group, a domestic inheritance specialist firm, together with a 5.12% share buyback program.
This approach to reinvesting capital into the growth of the business together with the buyback shows an effort to offset dilution, demonstrating a commitment to shareholder value and financial strength.

Independent Directors Are Responsible for Disclosures that Have Gaps from the Investors’ Perspective

In many cases of bad disclosures where the capital allocation policy has not been adequately considered, the company often fails to develop a concrete growth strategy using cash.
The reason for the misaligned disclosures with investors may be that the company lacks the process to produce projected financial statements and to estimate corporate value/share price calculated from DCF.
If a plan containing unreasonable figures is disclosed as is, the independent outside director may not be involved in the decision making or may not be accompanied by adequate skills.

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Dec 05

Daily Brief Japan: Seven & I Holdings, Nissan Tokyo Sales, Kioxia Holdings , Nextage Co Ltd, Geechs Inc, Geniee Inc and more

In today’s briefing:

7&I (3382 JP) – Ito-San MBO Plan Includes 7-Eleven US IPO… Which LeadsTo A Modest Proposal
Nissan Tokyo Sales Holdings (8291 JP) – Large Offering on Tiny Cap With Deep Value
Kioxia IPO: Peer Comparison and Valuation
Understanding Kioxia, A Worthwhile IPO?
NextAge (3186): Here We Go Again?
GEECHS (7060 JP) – Q2 Follow-Up
Geniee (6562 JP) – Maintaining a Growth Profile

7&I (3382 JP) – Ito-San MBO Plan Includes 7-Eleven US IPO… Which LeadsTo A Modest Proposal

A Bloomberg article late in the trading session today said the Seven & I Holdings (3382 JP) MBO proposal by Ito family scion Ito Junro includes a US assets IPO.
The idea? IPO proceeds would help pay down MBO debt to Japanese banks. Seven & i would retain a stake. This is not dissimilar to Berkshire Hathaway buying a stake.
But more directly, this leads us back to 7&I (3382) – What If… A Modest Proposal. Possible strategic mistake by Ito-san here. ACT should act on this.

Nissan Tokyo Sales Holdings (8291 JP) – Large Offering on Tiny Cap With Deep Value

By Shifara Samsudeen, ACMA, CGMA

Nissan Tokyo Sales (8291 JP) is a network of 120 dealerships with revenue from sales and repairs of about US$1bn a year. Nissan owns 34%. P&C insurers own 21%.
The P&C insurers will sell their 21%, to an offering and a ToSTNeT-3 buyback. Expect the net offering to be 10.5%, which is still 60+ days of ADV.
But it has net cash, securities, more securities, and landholdings. It trades at <0.5x book and a very large part of book is finance-able. This looks like an MBO candidate.

Kioxia IPO: Peer Comparison and Valuation

Kioxia has announced the terms for its IPO, and plans to raise $730m through issuing new shares as well as offer by existing shareholders, at a market capitalisation of $819bn.
Kioxia Holdings (285A JP) ‘s earnings have been volatile and margins have trailed compared to peers Micron and SK Hynix. Earnings are approaching a new peak.
Kioxia’s implied valuation multiples are at a deep discount to peer multiples, suggesting there is significant upside to the indicative IPO price range.

Understanding Kioxia, A Worthwhile IPO?

By Jim Handy

Kioxia is planning to offer its IPO on 18 December 2024. This Insight profiles Kioxia and its market.
NAND flash, Kioxia’s product, is a commodity, and that results in dramatic price, revenue, and margin swings.
Kioxia is in a joint venture that provides excellent scale economies which are offset by a supply agreement that amplifies troubles caused by oversupplies

NextAge (3186): Here We Go Again?

By Michael Allen

NextAge’s stock price dropped nearly 8% on December 5, when the Topix was up, with no apparent news on either the company’s website or any local media.
The next day, the Nikkei reported that the Financial Services Agency had raided the company’s office after confirming that insurance schemes had been deployed to defraud customers.
This sounds like an old story being leaked by rivals, so we called the company and confirmed: This is most likely old news.

GEECHS (7060 JP) – Q2 Follow-Up

On November 8th, 2024, Geechs Inc. (hereafter, the “Company”) announced its H1 FY2025/3 earnings results.
Net sales rose 2.2% YoY to JPY 12,183 mn, EBITDA rose 3.5% YoY to JPY 256 mn, and operating profit rose 84.3% YoY to JPY 193 mn.
Steady expansion of its core IT freelance matching business (Japan), the Seed Tech business turning profitable for the first time, and the absence of losses from G2 Studios (former Game business), sold at the end of the previous fiscal year helped boost results, but losses widened in the IT freelance matching business (Overseas).

Geniee (6562 JP) – Maintaining a Growth Profile

Geniee demonstrated high double-digit growth in sales (+36.3% YoY) and reported OP (+77.2% YoY) for Q1-2 FY3/25 results.
The acquisitive impact from the consolidation of Socialwire (3929) in July 2024 was positive, with a one-time ¥0.07bn gain related to disposing of a shared office operation.
Other income also benefitted by ¥0.32bn from the transition of JAPAN AI Co. from a consolidated subsidiary to an affiliate company due to capital-raising activities.

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Dec 04

Daily Brief Japan: Sanrio, Rakuten, AViC , Japan Lifeline, Tsubakimoto Kogyo, TSE Tokyo Price Index TOPIX and more

In today’s briefing:

Sanrio (8136 JP) – Kitty Behaving Badly
Lucror Analytics – Morning Views Asia
ａｖｉｃ (9554 Jp) – Quality Company with High Growth, Profit Margin, and ROE
Japan Lifeline Co., Ltd (7575 JP): Research Update
Tsubakimoto Kogyo (8052 Jp) – Executed a Share Buyback of 450,000 Shares
In the Dissolution of the Parent-Subsidiary Listing, the Second Step Is Key for the Parent Company

Sanrio (8136 JP) – Kitty Behaving Badly

Sanrio (8136 JP) announced a deal last week which I discussed in Sanrio (8136 JP) Large Secondary Offering – Don’t Say Hello Kitty! Too Soon. Next day it fell sharply.
There was shorting involved, and since then the stock has rallied 18% to clear the undisturbed price which itself was an all-time high, up 5% in the previous two days.
There is some LO buying, some HF covering, but a LOT of day-traders. In five days the stock has traded 903% of its Maximum Real World Float. That’s a lot.

Lucror Analytics – Morning Views Asia

By Leonard Law, CFA

In today’s Morning Views publication we comment on developments of the following high yield issuers: China Water Affairs, Shui On Land, Rakuten Group, Vedanta Resources
In the US, the November ISM manufacturing index came in above estimates at 48.4 (47.5 e / 46.5 p). The prices paid component fell to 50.3 (55.2 e / 54.8 p), while the new orders component rose to 50.4 (48.0 e / 47.1 p).
Separately, the November (final) US manufacturing PMI climbed to 49.7 (47.3 p), above the preliminary estimate of 48.8.

ａｖｉｃ (9554 Jp) – Quality Company with High Growth, Profit Margin, and ROE

By Nippon Investment Bespoke Research UK

Under its mission of “Creating a new view of the world with the AViC Team as the business driver,” AViC (hereafter, the Company) provides a full range of services related to digital marketing, from strategy development to execution.
In addition, the Company strives for and ensures “quality growth” by maintaining and improving profitability while pursuing sustainable business growth.
One of the Company’s distinguishing characteristics is its high productivity compared to competitors.

Japan Lifeline Co., Ltd (7575 JP): Research Update

Japan Lifeline [JLL] produced historical semi-annual earnings with FY24 1H OP of ¥6,260mil (+14.4% YoY) on sales of ¥27,985mil (+11.4% YoY), which landed above expectation.
Despite this robust performance, JLL has not revised its full-year FY24 guidance as the 2H presents with several potential earnings risks such as 1) fewer operating days, which will impact device sales, 2) an increase in outsourced products reducing GPM, 3) the possibility of a change in the competitive landscape for one of JLL’s core products.
The company’s shareholder return policy is the higher of (1) a pay-out ratio of 40% or (2) a Dividend on Equity [DOE] of 5%.

Tsubakimoto Kogyo (8052 Jp) – Executed a Share Buyback of 450,000 Shares

Tsubakimoto Kogyo announced at 10:00 a.m. on November 29, 2024 that it had completed its share buyback, which it announced following the previous day’s market close.
The Company explained that the reason for the share buyback is to improve shareholder returns and capital efficiency and to enable the implementation of an agile and flexible capital policy.
In its Q2 FY2025/3 earnings briefing held on October 31, 2024, the Company reported results that fell slightly short of plan, leading to a temporary drop in its share price.

In the Dissolution of the Parent-Subsidiary Listing, the Second Step Is Key for the Parent Company

The measure to implement 100% inclusion or separation of subsidiary profits from parent company profits is only the first step, and this alone won’t reflect positively on the stock price.
The key is the second phase of measures to strengthen the parent company’s overall ability to generate cash flow by investing in highly profitable businesses after restructuring its business portfolio.
Hitachi is one of the few cases where it quickly implemented the second phase and reflected growth in corporate value in its stock price through realization of cash flow expansion.

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Dec 03

Daily Brief Japan: TSE Tokyo Price Index TOPIX, Kioxia Holdings , Kawasaki Heavy Industries, Toyo Corp, Duskin Co Ltd, LaKeel and more

In today’s briefing:

Circumstances and GPIF Noises Could Mean Higher Equity Allocations In March 2025
Kioxia (285A JP) IPO: Valuation Insights
Kioxia IPO – Should Price at the Top, Though Peers Are Still Correcting
Kioxia (285A) IPO: Index Entry Timeline & Overhang from Plans to Increase Float
Japan Alpha | Bullish KHI (And MHI)
Toyo Corporation (8151 JP) – Poised to Enjoy Structural Growth from Increasing Defense Spending
Duskin (4665) – Forward Momentum Moderated
LaKeel (4074 JP) – Concerns over the Quality of Earnings

Circumstances and GPIF Noises Could Mean Higher Equity Allocations In March 2025

A Bloomberg article mid-day suggested Japan’s Ministry of Health, Labour and Welfare proposed a new “wage growth +1.9%” (vs 1.7% now) return bogey for the US$1.7trln Government Pension Investment Fund.
The GPIF is conducting its quinquennial review to assess markets, long-term prospects, correlations, etc, to set a CAPM asset allocation mix to meet the bogey.
The combination of higher USDJPY, Japan inflation, wider valuation spreads, and the prospect of higher yen rates suggests the review might result in lower yen bond allocs, higher equity allocs.

Kioxia (285A JP) IPO: Valuation Insights

Kioxia Holdings (285A JP) is a leading player in the NAND flash memory market. It will list on 18 December and seek to raise up to US$727 million.
We previously discussed the IPO in Kioxia (285A JP) IPO: The Bull Case and Kioxia (285A JP) IPO: The Bear Case.
Our valuation analysis suggests that the IPO price range of JPY1,390-1,520 per share is attractive. Therefore, we would participate in the IPO.

Kioxia IPO – Should Price at the Top, Though Peers Are Still Correcting

By Sumeet Singh

Kioxia Holdings (285A JP) is aiming to raise around US$840m (including over-allocation) in its Japan IPO.
It was the world’s largest pure-play NAND flash memory supplier, in terms of both revenue and unit shipments in 2023, according to TechInsights.
We have looked at the company’s past performance in our previous notes. In this note, we will talk about the IPO valuations.

Kioxia (285A) IPO: Index Entry Timeline & Overhang from Plans to Increase Float

By Brian Freitas

Kioxia Holdings (285A JP)‘s listing has been approved by the JPX and the stock is expected to start trading on the Prime Market from 18 December.
At the mid-point of the IPO price range of JPY 1390-1520/share, Kioxia Holdings (285A JP) will be valued at JPY 784bn (US$5.24bn).
TOPIX inclusion will take place in January while inclusion in global indices is likely to take place in May and June. Selling stock to increase float will be an overhang.

Japan Alpha | Bullish KHI (And MHI)

By Mark Chadwick

The recent pull-back in the share price of KHI provides a cheap entry point into the defense spending thematic
KHI’s defense revenues are projected to soar by 40% to ¥406 billion in FY24, outpacing industry leader MHI’s 20% growth
KHI and MJI to benefit from Japan’s defense spending doubling to 2% of GDP by 2027 and ¥43 trillion ($320 billion) earmarked over five years.

Toyo Corporation (8151 JP) – Poised to Enjoy Structural Growth from Increasing Defense Spending

Substantial OP growth – Q4FY9/ 24 results showed strong OP growth in Mechatronics / Noise & Vibration / Sensors (+80.2% YoY), Physics / Energies (+37.0% YoY), and Others (+50.0% YoY).
The OP growth of Others was primarily driven by the expansion of Ocean, Defense & Security.
Negative near term but positive long term – whilst FY9/25 guidance indicates a sharp 28.7% decline in OP YoY, the new medium-term plan indicates 10%+ CAGR for OP growth, and ROE expansion to 11.0% during FY9/25-FY9/27, which we view positively.

Duskin (4665) – Forward Momentum Moderated

The key takeaway from the Q1-2 FY3/25 result is that Duskin is making solid strides forward, although previous earnings projections appear to have been too ambitious.
Management has experienced challenges in aligning earnings guidance with actual performance, and there is a risk over whether it can deliver the planned ROI on the major ¥21bn capex automation project at the Direct Selling Group.
The Food Group continues to perform positively towards its full potential at ‘Mister Donut’, and we believe this segment will continue to be the core contributor to earnings growth.

LaKeel (4074 JP) – Concerns over the Quality of Earnings

Despite a positive market environment for IT capex driven by DX demand, the company is said to be experiencing longer contract lead times when dealing with increasing project sizes.
Consequently, earnings visibility has fallen, resulting in a downward revision to FY12/24 guidance, stemming from a drop in license sales and consulting.
Difficulties with forecasting indicate potential concerns over management execution and challenges over technology adoption by customers in our view.

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Dec 02

Daily Brief Japan: Seven & I Holdings, Kioxia Holdings , Shinko Electric Industries, MS&AD Insurance, Net One Systems, TSE Tokyo Price Index TOPIX, Megmilk Snow Brand and more

In today’s briefing:

7 & I (3382) – York Holdings Sale Process, Timeline, Nuances
Kioxia (285A JP) IPO: The Bear Case
Merger Arb Mondays (02 Dec) – Shinko, WealthNavi, AVJennings, SG Fleet, Latin Res, Get Nice, GA Pack
Japan CorpGovReports: TSE “Mgmt Conscious of Capital Cost/Stock Price” Details (Dec24), TSE Updates
(Mostly) Asia M&A, Nov 2024: Net One System, Amcor/Berry, I D & E Holdings, SG Fleet, Macromill
P/B Reform: Effective Disclosure to Include that “going Private” Is an Option
ECM Weekly (2nd Dec 2024) – Kioxia, FineToday, MNC Solutions, JST, Pateo, Carraro, Hulic, Sanrio
Megmilk Snow Brand (2270 JP): Coverage initiation,1H FY03/25 flash update

7 & I (3382) – York Holdings Sale Process, Timeline, Nuances

The sale process of Seven & I Holdings (3382 JP) “unit” York Holdings, with 31 sub-units, has started. 7+ bidders bid in Round 1. Due dili follows then Round 2.
I expect SST+support ops get sold, and the specialty stores get carved out. I expect the deal to get decided by end-Feb 2025. Noises about real estate enhancement are encouraging.
This is still all to the good, so I include a Gratuitous Chart Showing 7&i’s Up-And-To-The-Rightness

Kioxia (285A JP) IPO: The Bear Case

Kioxia Holdings (285A JP) is a leading player in the NAND flash memory market. It will list on 18 December and seek to raise up to US$740 million.
In Kioxia (285A JP) IPO: The Bull Case, we highlighted the key elements of the bull case. In this note, we outline the bear case.
The bear case rests on unrealistic long-term financial model assumptions, market share losses, high customer concentration risk, volatile gross margin due to JV and weak FCF profile.

Merger Arb Mondays (02 Dec) – Shinko, WealthNavi, AVJennings, SG Fleet, Latin Res, Get Nice, GA Pack

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: WealthNavi (7342 JP), Shanghai Henlius Biotech (2696 HK), Shinko Electric Industries (6967 JP), Get Nice Financial Group Ltd (1469 HK), Arcadium Lithium (LTM AU), Canvest.
Lowest spreads: Renewable Japan (9522 JP), Macromill, Inc (3978 JP), Fuji Soft Inc (9749 JP), Nec Networks & System Integr (1973 JP), Elematec Corp (2715 JP), I-PEX (6640 JP).

Japan CorpGovReports: TSE “Mgmt Conscious of Capital Cost/Stock Price” Details (Dec24), TSE Updates

TSE-Listed companies are asked to file “Management Conscious of Capital Cost/Stock Price” awareness reports/policies. Many have. Some are still working on it. And policies change, and CGR reports are updated.
344 new CGRs were filed since 31 October. Our tools show every report, links to every document, and now a new diff file tool. Input a name, see the changes.
The TSE Council for the Followup to Market Restructuring met a month ago. They want more progress and more fairness in fair takeovers. Worth reading the docs (here).

(Mostly) Asia M&A, Nov 2024: Net One System, Amcor/Berry, I D & E Holdings, SG Fleet, Macromill

By David Blennerhassett

For the month of November 2024, 14 new transactions (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$15bn.
The average premium for the new transactions announced (or first discussed) in November was ~44%. The average premium YTD is ~43%.
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.

P/B Reform: Effective Disclosure to Include that “going Private” Is an Option

Since there’s little confidence that merely disclosed share buybacks and medium-term management plans will increase corporate value in future, it’s natural that institutional investors’ evaluation of these plans is low.
For companies that develop budgets and plans each January, the key is to incorporate into their budgets the use of cash that will ensure future growth in corporate value.
For companies that lack the time to translate “mid-term management plan” into strategy to increase corporate value within two months, including “going private is an option” is an effective disclosure.

ECM Weekly (2nd Dec 2024) – Kioxia, FineToday, MNC Solutions, JST, Pateo, Carraro, Hulic, Sanrio

By Sumeet Singh

Aequitas Research’s weekly update on the IPOs, placements, lockup expiry and other ECM linked events that were covered by the team over the past week.
On the IPOs front, listing in the past week didn’t do much, while a number of comapnies are still looking to beat the year end deadline.
On the placements front, there were a number of secondary selldowns in Japan.

Megmilk Snow Brand (2270 JP): Coverage initiation,1H FY03/25 flash update