Japan

In today’s briefing:

Inabata & Co (8098) – LARGE Equity Secondary Offering by Sumitomo Chemical
“Requests” Through Overseas Investor Engagement Will Continue to Be More Effective than TSE Requests

Inabata & Co (8098) – LARGE Equity Secondary Offering by Sumitomo Chemical

On Friday after the close, Inabata & Co (8098 JP) announced Sumitomo Chemical (4005 JP) would sell down a large stake in a ~$200mm secondary equity offering.
Mizuho Bank’s Retirement Benefit Trust account sells down too. Sumitomo Chem will keep 10+% and other crossholders remain.
This is “big” at 80 days of ADV with limited early index demand, but a 10% fall would make this cheap enough to buy vs Peers.

“Requests” Through Overseas Investor Engagement Will Continue to Be More Effective than TSE Requests

In Japan, many companies have large gap between their stock price and their intrinsic value due to issues related to the use of assets and other resources or cash flow.
Companies want to use the example of “improvement measures” to be released by TSE in January as a template, so we can’t expect “management is serious about tackling this issue.”
The fact that ROE has improved modestly over the past decade indicates that management hasn’t made fundamental changes to traditional management strategies to address the challenges faced by individual companies.

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Jan 07

Daily Brief Japan: Aoki Super, TSE Tokyo Price Index TOPIX and more

In today’s briefing:

(Mostly) Asia-Pac Weekly Risk Arb Wrap: Aoki, Kerry Express Thailand, JOYY, Tietto Mins, Pact Group
Investors Do Not Want to See A “P/B Improvement Plan” That Follows a Template

(Mostly) Asia-Pac Weekly Risk Arb Wrap: Aoki, Kerry Express Thailand, JOYY, Tietto Mins, Pact Group

By David Blennerhassett

I tally 50 – 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 this week: AOKI Holdings (8214 JP)‘s MBO and in-specied-triggered MTO got Kerry Express Thailand (KEX TB).
Key updates took place on: JOYY (YY US), Tietto Minerals Ltd (TIE AU)and Pact Group Holdings (PGH AU).

Investors Do Not Want to See A “P/B Improvement Plan” That Follows a Template

TSE’s request to raise P/B was issued March end, and the number of companies that have disclosed their improvement measures is still low, at only about 30% of all companies.
Companies are likely to use good examples, but because the factors that increase share price vary from company to company, companies must offer their own solutions to their own situations.
Investors don’t want to see “P/B improvement plan” that follows the template, but want to see compelling measures that demonstrate cash flow growth, which is based on share price appreciation.

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Jan 06

Daily Brief Japan: Aoki Super, Japan Airlines, LaKeel and more

In today’s briefing:

Aoki Super (9977) MBO at ¥3,800/Share (All-Time High, 15x Forecast FCF)
Aoki Super (9977 JP): MBO Tender Offer at JPY3,800
Japan Airlines: Upside to Expectations Despite A350 Loss
LaKeel (4074) – Remaining Steadfast in Building Its Ecosystem

Aoki Super (9977) MBO at ¥3,800/Share (All-Time High, 15x Forecast FCF)

The family which owns and controls ubiquitous Nagoya supermarket chain Aoki Super (9977 JP) will acquire the 47% it does not own in an MBO.
This appears to be an estate planning exercise, creating a context to hand off ownership from the 77yr old former CEO to his 44yr old son and current CEO.
This comes in at a 44% premium, an all-time high price, and 15+x forecast FCF (even if the forecast looks a little light). This gets done easily.

Aoki Super (9977 JP): MBO Tender Offer at JPY3,800

By Arun George

Aoki Super (9977 JP) has recommended an MBO tender offer of JPY3,800 per share, a 43.9% premium to the undisturbed (5 January).
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 13.35% ownership ratio.
Based on the irrevocables, the minimum acceptance condition requires a 28.6% minority acceptance rate. This acceptance rate is achievable as the offer represents an all-time high.

Japan Airlines: Upside to Expectations Despite A350 Loss

By Neil Glynn

Our updated analysis suggests that JAL’s FY24 to March 2024 EBIT guidance of ¥ 130bn remains conservative. We see ¥ 177bn as achievable unless forward bookings weaken.
Our analysis of JAL’s management of inflation highlights it is outperforming many APAC and global peers, keeping unit cost increases to a minimum.
Reduced overheads have proved the key driver of inflation avoidance, while stable unit personnel costs contrast starkly with US carriers in particular; JAL’s largest international market.

LaKeel (4074) – Remaining Steadfast in Building Its Ecosystem

By Astris Advisory Japan

On track to scale – over the last 12 months we believe LaKeel has made progress in developing its ecosystem, driving new customer acquisitions, and increasing MMR for its key DX-related in-house LaKeel Products.
While Q1-3 FY12/2023 results highlighted risks over license sale slippages, LaKeel’s strategy remains focused on providing innovative business and technology solutions with high ROI, and reducing IT ownership costs with reusable microservices and sustainable software development.
Despite the slower-than-expected business development, we believe LaKeel’s products and services are differentiated to make headway in a market with a significant need for digital transformation, and its ecosystem will expand and become more commercialized.

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Jan 05

Daily Brief Japan: TSE Tokyo Price Index TOPIX, Fast Retailing and more

In today’s briefing:

New Year New NISA Accounts – It’s BIG, But Not so Big
Fast Retailing: Earnings Preview

New Year New NISA Accounts – It’s BIG, But Not so Big

The Kishida administration put out a Doubling Asset-Based Income Plan in 2022. The goal? To get cash savings (corporate/individual) into growth assets and increase asset-based return contribution to income.
The goal included doubling the number of NISA accounts, and the amount invested in the next five years. On 1 January 2024, NEW NISA account contribution totals were trebled.
If accounts double, and contribution totals treble, and exemptions are now permanent, investment doubling is a quasi-certainty. The question is how it turns into income-producing assets. That’s MUCH tougher.

Fast Retailing: Earnings Preview

By Oshadhi Kumarasiri

While domestic revenues may have slowed, Uniqlo’s domestic OP shows upside potential driven by gross margin growth and a gradual reduction in SG&A costs.
Meanwhile, we expect Uniqlo’s International business OP to surpass ¥75bn, driven by a rebound in China demand and strong momentum in South Korea, SE Asia & Ocenia.
Thus, we see the upcoming earnings as a compelling opportunity for trading Fast Retailing (9983 JP).

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Jan 04

Daily Brief Japan: TSE Tokyo Price Index TOPIX and more

In today’s briefing:

For Increasing TOBs and MBOs, Managers Should Be Aware of Listing Costs and PE Market Should Expand

For Increasing TOBs and MBOs, Managers Should Be Aware of Listing Costs and PE Market Should Expand

Companies with large shareholders’ interests of 20% or more account for 779 of 1,784 companies in Metrical Universe. A number of companies are investment targets as TOB and MBO candidates.
Companies with large shareholder influence may feel distanced from general corporate governance practices, but their interests are aligned with those of minority shareholders in terms of shareholder-oriented management.
For quality markets, it’s necessary to reduce the number of companies by increasing TOBs and MBOs, and to do so, managers need to be aware of the cost of listing.

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Jan 03

Daily Brief Japan: HS Holdings, Japan Airlines, Ushio Inc, Toyoda Gosei, Eisai Co Ltd and more

In today’s briefing:

HS Holdings (8699) – New Year, New Issues So Lots of Value But Buyer Beware!
Plane Crash at Haneda Airport; Negative for Japan Airport Terminal and Japan Airlines
Ushio (6925 JP): Tie-Up with Applied Materials Adds to Long-Term Potential
Quiddity JPX-Nikkei 400 Rebal 2024: End-Dec 2023
Eisai Co Ltd (4523 JP): Why Performance Reversal Is Not Expected in Near-Term

HS Holdings (8699) – New Year, New Issues So Lots of Value But Buyer Beware!

Under the requirements of the Amended Mongolian Banking Law (Feb 2021), Khan Bank (KHAN MO) needed to IPO. It did, and HS Holdings (8699 JP)‘s stake fell to 49.77%.
It was de-consolidated. They were locked up for 6mos. The look-through financials are easier now. The company has bought back stock and trades at <0.5x book.
But the Mongolian Banking Law required one more thing. All D-SIBs had to get all shareholders below 20% by 31 December 2023. It’s not clear that happened.

Plane Crash at Haneda Airport; Negative for Japan Airport Terminal and Japan Airlines

By Mohshin Aziz

Japan Airline’s Flight JL516 operated by a two-year-old Airbus A350-900 burst into flames upon landing at Haneda Airport, apparently hitting a small Japanese Coast Guard aircraft
379 passengers and crew were safely evacuated, but five of six crew on a Japanese coast guard aircraft were unaccounted for
Haneda Airport runaways are all closed, aircraft heading to Haneda are diverted to other airports or flights aborted altogether

Ushio (6925 JP): Tie-Up with Applied Materials Adds to Long-Term Potential

By Scott Foster

Ushio has tied up with Applied Materials (AMAT) to develop lithography systems for package substrates using AMAT’s Digital Lithography Technology.
This should keep the focus on Ushio’s more advanced technologies (which also include EUV mask inspection light sources) and its potential to rebound with the semiconductor cycle.
The shares have dropped back 10% since mid-December, providing an entry point. 3Q results are scheduled to be announced on February 9.

Quiddity JPX-Nikkei 400 Rebal 2024: End-Dec 2023

By Janaghan Jeyakumar, CFA

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.
A periodic review is conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year. We look at the rankings of the potential ADDs/DELs every month.
Below is a look at potential ADDs/DELs for the JPX-Nikkei 400 Index Rebal to come in August 2024 based on trading data as of end-December 2023.

Eisai Co Ltd (4523 JP): Why Performance Reversal Is Not Expected in Near-Term

By Tina Banerjee

Eisai Co Ltd (4523 JP) shares corrected more than 60% from highs over the disappointment from Alzheimer’s disease drug Leqembi. During H1FY24, Leqembi reported revenue of just ¥400M ($3M).
With approximately 40% revenue contribution, anti-cancer drug Lenvima is the top selling drug of Eisai. In the U.S., Lenvima patent protection will start to expire in US in October 2025.
In December, Eisai has submitted a marketing authorization application in Japan for tasurgratinib for biliary tract cancer. If approved, tasurgratinob will be a late entrant in a crowded market.

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Jan 02

Daily Brief Japan: Denso Corp and more

In today’s briefing:

Necessary to Dissolve Cross Shareholdings While Simultaneously Ensuring the Independence of BoD

Necessary to Dissolve Cross Shareholdings While Simultaneously Ensuring the Independence of BoD

Toyota’s sale of Denso shares is believed to be aimed at securing cash for full-scale EV production, and it’s premature to expect “governance improvement through the sale of cross-held shares.”
Since Toyota intends to maintain a 20% equity stake in Denso, which is an equity method affiliate, there will be no change in the influence on Denso for a while.
While intercompany shareholdings and board reciprocity based on business relationships were one of Toyota’s strengths, the interests of minority shareholders were at risk of being left behind.

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Jan 01

Daily Brief Japan: Lifenet Insurance Company, TSE Tokyo Price Index TOPIX, Misumi Group and more

In today’s briefing:

Lifenet: Oasis Management Is Now Another Major Shareholder Besides Effissimo
The Objective of an MBO Is Not to Strip Bothersome Activist Investors of Their Equity Interests
Misumi Group (9962 JP): Heads up for 3Q Results in Late January

Lifenet: Oasis Management Is Now Another Major Shareholder Besides Effissimo

By Alec Tseung

Oasis Management has become a major shareholder in Lifenet in November. Together with another activist investor, Effissimo Capital (the largest shareholder), they now control >30% of the company.
Company announced some new partnerships/initiatives to drive growth but they don’t seem to be materially different from what it has been doing to turn around its declining VoNB.
Unless we can see a sustained trend of improving VoNB, it’s difficult to justify the premium valuation vs. the other more established peer.

The Objective of an MBO Is Not to Strip Bothersome Activist Investors of Their Equity Interests

Rather than “management with awareness of stock price,” the question is whether management is carrying out its duties toward “the goal of increasing shareholder interests,” to put it more accurately.
In determining TOB price, the question is whether independent committee was established, whether that committee actually functioned, and whether the directors performed their duties in the best interests of shareholders.
The real objective of an MBO is to restart the company for a sustainable expansion of corporate value, not to rip off the equity stake of a bothersome activist investor.

Misumi Group (9962 JP): Heads up for 3Q Results in Late January

By Scott Foster

The gradual upward trend in monthly sales, which has continued through November, has further to go in our estimation.
At 22x EPS guidance for FY Mar-24, the shares are at the low end of their 5-year P/E range.
Guidance remains unchanged. 3Q results are due to be announced at the end of January

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Dec 30

Daily Brief Japan: TSE Tokyo Price Index TOPIX and more

In today’s briefing:

Key to Promote Diversity Isn’t Company’s Size but Rather Manager’s Judgment and Ability to Execute

Key to Promote Diversity Isn’t Company’s Size but Rather Manager’s Judgment and Ability to Execute

The efforts of SMEs aren’t initiatives for disclosure by listed companies, but measures born out of situations that compelled them to promote diversity as integral part of their business operations.
Not only SMEs, but also listed companies with management keenly aware of business risks could promote diversity initiatives that are rooted in their business without taking time to make decisions.
The goal should be to make human capital and diversity a core competence rooted in the business, not a passive initiative such as doing it for disclosure.

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Dec 29

Daily Brief Japan: Nikkei 225, Nihon Kohden, Mitsubishi Shokuhin and more