Japan

In today’s briefing:

EQD | The Nikkei Will Pullback Within 1-3 Weeks
Nihon Kohden (6849 JP): Apart from Apple Smartwatch Ban, Three More Reasons to Buy Shares
Retail Media: A Major New Income Stream Even for Wholesalers

EQD | The Nikkei Will Pullback Within 1-3 Weeks

By Nico Rosti

The Nikkei 225 (NKY INDEX) is about to close up for the 3rd consecutive week (CC=+3), it’s towards the Q3 resistance level at 33984: it’s short-term overbought.
There is a good chance that the index will pull back in the next 1-3 weeks, at the moment it looks like the rally has “stalled”.
The pullback may be an opportunity to buy again, and ride a rebound to previous highs, we will discuss LONG levels in a separated insight.

Nihon Kohden (6849 JP): Apart from Apple Smartwatch Ban, Three More Reasons to Buy Shares

By Tina Banerjee

On December 26, Nihon Kohden (6849 JP) shares jumped ~15% as the company was a beneficiary of the ban on Apple (AAPL US)’s latest smartwatch models.
Nihon Kohden reported better-than-expected result in H1FY24. The company raised FY24 revenue forecast to ¥221.5B (+7% YoY) from ¥215.0B. The company has also raised FY24 operating and net profit guidance.
Currently consensus expects 2% YoY revenue growth for the company in FY25. With strong demand for existing products and new launches, the expectation seems to be conservative.

Retail Media: A Major New Income Stream Even for Wholesalers

By Michael Causton

Seven Eleven and Familymart have already sent panic through the offices of major advertising agencies by setting up their own retail media networks.
Now, Mitsubishi Shokuhin will do the same, using its trading company connections and its existing ties to 10,000 clients at either end of the supply chain.
To personalise ads, it is working with the data analysis of geolocation company Unerry.

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Dec 28

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

In today’s briefing:

Companies Keen to Reduce Administrative Costs, but Reluctant to Provide Convenience to Shareholders
Part Two: JGB Yields Spike Cause Yen Mayhem

Companies Keen to Reduce Administrative Costs, but Reluctant to Provide Convenience to Shareholders

Not much progress has been made in the early disclosure of convocation notices. The key to even earlier disclosure of convocation notices is the moving up of earnings announcement dates.
Overseas investors require that all materials in the notice of convocation be provided translated in English, and only 27.3% of prime market listed companies have responded.
Few companies file their annual securities reports prior to AGMs. This can be taken as companies’ intention to provide as little detailed information as possible to shareholders prior to AGMs.

Part Two: JGB Yields Spike Cause Yen Mayhem

By Untying The Gordian Knot

On December 6, 2023, Deputy Gov. Ryozo Himino and other policy board members signalled increasing optimism on price and wage increases.
Himino said at a press conference following a meeting on Wednesday that exiting the negative rate policy would have relatively little impact on Japan’s economy.
“We will carefully assess the situation and consider the timing and procedure of how to exit” negative rates.

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Dec 27

Daily Brief Japan: Fujitsu General, IJTT Co., Ltd. and more

In today’s briefing:

Fujitsu General (6755) – Fujitsu Wants Out, May Force the Issue
IJTT (7315 JP): Risk/Reward as SPARX Bumps to JPY850

Fujitsu General (6755) – Fujitsu Wants Out, May Force the Issue

In 2019, it became apparent Fujitsu Ltd (6702 JP) wanted to sell down its stakes in non-core businesses (Shinko Electric, Fujitsu General, and FDK), and move on to better things.
In early January 2023, a Bloomberg article suggested a sale process. A 20 Jan 2023 article suggested Fujitsu General’s auction was imminent. I wrote a piece. It was not bullish.
The stock rose a bit, then fell 40+% through last week. Now another article suggests some urgency at Fujitsu. That changes things.

IJTT (7315 JP): Risk/Reward as SPARX Bumps to JPY850

IJTT Co., Ltd. (7315 JP) has recommended Sparx Group (8739 JP)’s revised tender offer of JPY850, 4.7% premium to its previous JPY812 offer. The revised offer has been declared final.
The Isuzu Motors (7202 JP) share repurchase price has risen 4.0% from JPY677 to JPY704. The tender closes on 15 January 2024. All other terms are unchanged.
The shares are trading above the revised terms. A final offer and no competing bidder points to an unfavourable risk/reward profile – a 21% downside on a deal break.

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Dec 26

Daily Brief Japan: IJTT Co., Ltd., Daiwa House Reit Investment, Gumi Inc, Seedheiwa, Lawson Inc, TSE Tokyo Price Index TOPIX and more

In today’s briefing:

IJTT (7315 JP) – Truly Offensive Takeover Price Gets Bumped, Offensively
Japan – Increasing Shorts on Some Interesting Stocks
SBI To Buy Gumi (3903) Shares To Up Stake to Near 30% (And Try To Avoid Impairment)
Meldia DC (1739 JP) – Open House Group Cleans Up Sanei Architecture Sub in TOB.
Convenience Wear: Familymart Competes with Uniqlo in Basics
Demand for Disclosure to Answer the Goal of Promoting Sustainability to Increase Corporate Value

IJTT (7315 JP) – Truly Offensive Takeover Price Gets Bumped, Offensively

IJTT Co., Ltd. (7315 JP) was perhaps one of the lower-priced parent takeovers (Isuzu remains central to the bidder post-buyout) at 0.46x book. Today, the last day, it got bumped.
The new price is ¥850/share vs ¥812/share. +4.7% and a whopping 0.48x book now. ¥850 is where the stock traded just before the announcement. It immediately jumped to ¥875/share.
It appears Isuzu is not getting any more money out of this, but they should be OK. They are buying back in at 0.48x book. With leverage.

Japan – Increasing Shorts on Some Interesting Stocks

By Brian Freitas

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 early next year.
The deletion from passive portfolios will lead to a liquidity event at the end of February where passive trackers will need to sell multiple days of ADV.
Shorts have started to increase on some of the stocks and there will be further positioning as we near the liquidity event.

SBI To Buy Gumi (3903) Shares To Up Stake to Near 30% (And Try To Avoid Impairment)

Today after the close, SBI Holdings (8473 JP) made an announcement it would buy (up to) 3.0mm shares of Gumi Inc (3903 JP) shares between tomorrow and end-March 2024.
SBI already owns 8.8mm shares, and this would bring them close to 30.0%.
SBI did not specifically say they would buy on market, but the next 400,000 shares would require a large shareholder filing amendment.

Meldia DC (1739 JP) – Open House Group Cleans Up Sanei Architecture Sub in TOB.

Open House (3288 JP) took over Sanei Architecture Planning (3228 JP) this past autumn when banks forced the issue over the former CEO/owner’s mafia ties discovered in an investigation.
Seedheiwa (1739 JP) now better known as Meldia DC, is ~60% held by Sanei Architecture Planning, and 3% by Mr Koike. It has debt. So it needs cleaning up too.
This is too light for minorities, and even lighter for whole co, but it’s a done deal.

Convenience Wear: Familymart Competes with Uniqlo in Basics

By Michael Causton

The almost viral popularity of Familymart’s line of basic clothing items continues to grow and shows the real potential for convenience stores to diversify and adapt.
Backed by Itochu, Familymart has expanded the product range and added new, limited edition items and brand collaborations, creating a success story that Seven Eleven may find hard to emulate.
Lawson, however, is controlled by Mitsubishi Corp which happens to have a clothing production arm that was behind the early success of Uniqlo and Adastria.

Demand for Disclosure to Answer the Goal of Promoting Sustainability to Increase Corporate Value

60% companies have established policies to promote human capital. Companies will be asked whether their goals are reasonable and whether their actual measures and progress toward those goals are sufficient.
Since many companies have set a target of 14-15% for % female managerial positions around 2025, it makes us worry whether they can really achieve 30% target in 2030.
Few companies have disclosed specific impact estimates under certain conditions. It’s expected that some proactive companies will push others to do the same regarding “Scope 3” in the future.

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Dec 25

Daily Brief Japan: ASICS Corp, JSR Corp, Quantum Solutions Co Ltd and more

In today’s briefing:

Asics (7936) | Footwear Fallout as Nike’s Q2 Sends Sector Shockwaves
Merger Arb Mondays (25 Dec) – JSR, Benefit One, IRC, Adbri, Link, A2B, Probiotec, Lithium Power
Quantum Solutions (2338 JP): Look Again at Small Cap Play on AI Servers and Web-3.0 Gaming

Asics (7936) | Footwear Fallout as Nike’s Q2 Sends Sector Shockwaves

By Mark Chadwick

Nike’s Q2 results lead to a 12% drop in its shares, affecting sector peers Onon, Skechers, and Asics with significant declines.
Challenging trading conditions in China and Europe, coupled with a subdued digital traffic outlook from Nike, raise broader concerns for the sector.
Asics stock declines 20% post-Nike’s fall, presenting an attractive buying opportunity with an estimated 20% upside, positioning Asics as a cost-effective play in the global performance running market.

Merger Arb Mondays (25 Dec) – JSR, Benefit One, IRC, Adbri, Link, A2B, Probiotec, Lithium Power

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 – Irc Ltd (1029 HK), Orecorp Ltd (ORR AU), Shinko Electric Industries (6967 JP), JSR Corp (4185 JP), Adbri (ABC AU), Probiotec Ltd (PBP AU), Volpara Health.
Lowest spreads – Tietto Minerals Ltd (TIE AU), A2B Australia (A2B AU), IJTT Co., Ltd. (7315 JP), T&K Toka Co Ltd (4636 JP), Tokyo Rakutenchi (8842 JP), Pact Group.

Quantum Solutions (2338 JP): Look Again at Small Cap Play on AI Servers and Web-3.0 Gaming

By Scott Foster

Quantum Solutions has given up 63% of its recent gain but has more NVIDIA GPU related orders in the pipeline. Keep an eye on the stock and the news flow.
The recent upward revision to sales and profit guidance has been followed by the announcement of a capital and business tie-up with Hajime Tabata’s JP Games.
The addition of Web-3.0 gaming to distribution of AI servers and Arm-based edge computing hardware could change the nature of the investment.

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Dec 24

Daily Brief Japan: Benefit One Inc, TSE Tokyo Price Index TOPIX and more

In today’s briefing:

Last Week in Event SPACE: Benefit One, Hankook, Toyo Construction, Hanwha, Tsuruha, Livent/Allkem
Weekly Deals Digest (24 Dec) – Benefit One, JSR, Weiqiao Textile, A2B, Adbri, Azure, Link, Probiotec
Maybe Management Is Finally Becoming Aware of the Cost of Listing

Last Week in Event SPACE: Benefit One, Hankook, Toyo Construction, Hanwha, Tsuruha, Livent/Allkem

By David Blennerhassett

Stay long Benefit One (2412 JP). Dai-Ichi Life can pay more, if pushed on pricing. May not be huge, but it could be a few percent or even 10%.
Hankook & Company (000240 KS)‘s family feud goes public. The public tender looks set to fail. Coal in stockings all-round.
If you had any Toyo Construction (1890 JP) left over from the rally up to ¥1,300+, get out. There may be a better opportunity later, but not here.

Weekly Deals Digest (24 Dec) – Benefit One, JSR, Weiqiao Textile, A2B, Adbri, Azure, Link, Probiotec

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 – Nothing of note in a quiet week.
Event-Driven developments – Benefit One Inc (2412 JP), JSR Corp (4185 JP), Weiqiao Textile Co (2698 HK), Adbri (ABC AU), Azure Minerals (AZS AU), Link Administration (LNK AU).

Maybe Management Is Finally Becoming Aware of the Cost of Listing

Many companies had the goal of IPOs as a means to save taxes rather than growth, but it’s good to seriously consider go private for the sake of their shareholders.
This is due to companies’ awareness of listing costs, such as demands from overseas investors for improved governance and requests from TSE for “management with awareness of the stock price.”
Another issue that needs to be examined is the loss of growth and profitability for companies that are delisted and then relisted.

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Dec 23

Daily Brief Japan: MARUKA FURUSATO and more

In today’s briefing:

3Q Follow-Up – MARUKA FURUSATO Corporation (7128 JP)

3Q Follow-Up – MARUKA FURUSATO Corporation (7128 JP)

The Medium-Term Management Plan UNISOL includes the following FY26/12 targets, net sales of ¥200.0 bn, operating profit of ¥10.0 bn, and ROE of 8.5%.
MARUKA FURUSATO will enter the 2nd stage of the plan, a period of accelerated growth, starting in FY24/12. During the 1st stage of the plan, which was centered on establishing a base, various initiatives were undertaken.
The company promoted cross sales and expanded rebates through commercial flow integration, starting with streamlining administration departments, which included merging offices.

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Dec 22

Daily Brief Japan: Benefit One Inc, Pasona Group, TSE Tokyo Price Index TOPIX, Japan System Techniques Co, Carta Holdings, Inc. and more

In today’s briefing:

Dai-Ichi Life “Decides” Tender Offer Price and Buyback Price at ¥2,123 and ¥1,491/Share
Benefit One (2412 JP): Dai-Ichi Life’s Tender Offer at JPY2,123
Buy Pasona As Dai-Ichi Life Amends Benefit One’s Tender Offer & Buyback Price
A Market with a Low Average ROE Favors Valuations for Companies with More Reliable Cash Flow
2Q Follow-Up – Japan System Techniques (4323 JP)
3Q FOLLOW-UP – Carta Holdings (3688 JP)

Dai-Ichi Life “Decides” Tender Offer Price and Buyback Price at ¥2,123 and ¥1,491/Share

Today, Dai Ichi Life Insurance (8750 JP) came out with a cover letter and an amended Announcement of Intention to Commence a Tender Offer on Benefit One Inc (2412 JP).
The cover letter says they have obtained information from Pasona Group (2168 JP) and Benefit One allowing them to calculate a Tender Offer of ¥2,123/share for minorities, and buyback at ¥1,491/share.
Now we wait. Again. Dai-Ichi Life “intends” to start a tender in mid-Jan 2024 (19 Jan likely earliest start possible) but it is not clear timing will come that early.

Benefit One (2412 JP): Dai-Ichi Life’s Tender Offer at JPY2,123

Dai Ichi Life Insurance (8750 JP)‘s pre-conditional tender offer for Benefit One Inc (2412 JP) is JPY2,123 per share, a 32.7% premium to M3 Inc (2413 JP)’s offer.
The other terms are unchanged. The pre-conditions relate to board recommendation, Pasona Group (2168 JP) support, and the M3 offer not being completed. The tender offer starts in mid-January 2024.
While M3 has extended its offer period to 17 January 2024, it will unlikely engage in a bidding war. Expect the Board and Pasona to support the Dai-ichi Life proposal.

Buy Pasona As Dai-Ichi Life Amends Benefit One’s Tender Offer & Buyback Price

By David Blennerhassett

Earlier this month, Dai Ichi Life (8750 JP) countered M3 with an unsolicited ¥1,800/share Offer of Equity Value TOB; followed by a Benefit One buyback to mop up Pasona‘s stake.
Dai-Ichi has now amended the TOB Price for minorities in Benefit One to ¥2,123/share, and the tax-equivalent price of ¥1,800/share for Pasona would be ¥1,491 on the Buyback Tender, post-squeezeout.
That price appears a bit higher for Pasona than expected, and therefore a bit lower for Benefit One minorities. Terms can still be bumped.

A Market with a Low Average ROE Favors Valuations for Companies with More Reliable Cash Flow

Since the ROE has been hovering around the 9% ceiling, the challenge is that few companies could present future outlook convincing enough to raise expectations of sustainable ROE growth.
Since stable BPS has higher correlation with TOPIX than EPS, investors trust a company that accumulates cash flow in shareholders’ equity to sustainably increase profits than to temporarily increase profits.
Since it’s been confirmed that Tobin’s Q of companies with more cash on hand is higher, the stock valuations of companies with higher cash flow margins tend to be higher.

2Q Follow-Up – Japan System Techniques (4323 JP)

Fully independent DX provider: Japan System Techniques (JAST) is an independent system integrator that develops and sells software and systems, which celebrated its 50th anniversary.
The company develops systems for customers in a variety of industries and sectors, including finance, manufacturing, distribution, services, public services, telecommunications, transportation, and science and technology.
Furthermore, as a developer, the company has three main JAST-branded software offerings for its customers, namely GAKUEN for the education industry, BankNeo for the financial industry, and JMICS (JAST Medical Insurance Checking System) for the medical industry and the profitability of these own-brand businesses is very high.

3Q FOLLOW-UP – Carta Holdings (3688 JP)

In 2023, the first year of CARTA Holdings’ new medium-term management plan, the company made a solid push to reform its business and organizational structure with the aim of executing a sharp recovery in business performance.
It moved forward with narrowing its focus, integrating four direct sales subsidiaries in the digital marketing business, and withdrawing from the low-profit game and hometown tax payment business in the internet-related services business.
In addition, the company announced and implemented additional measures to reduce fixed costs to the tune of ¥1 bn, including by calling for voluntary retirement during FY23/12, as its earnings may fall further than initially expected before bottoming out, mainly for reservation-based ads.

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Dec 21

Daily Brief Japan: Toyo Construction, Taisho Pharmaceutical Holdin, LIFULL and more

In today’s briefing:

Toyo Construction (1890) – Everyone Hits Pause
Japan Bumpitrage Potential: T&K Toka, IJTT, Taisho, Shidax, Benesse, Tokyo Rakutenchi
Full Report – Lifull (2120 JP)

Toyo Construction (1890) – Everyone Hits Pause

In September, YFO (Yamauchi Family Office) upped its Tender Offer proposal to ¥1,255/share. YFO presented. The Toyo Special Committee met, interviewed, examined, deliberated, then last week rejected YFO’s proposal.
The rejection was a three-parter. First, they rejected YFO for not bringing management/ownership experience. Second, they said the proposal didn’t add enough value. Third, the price was too low.
There were no metrics against which to measure anything. And now Toyo has apparently decided to withdraw its Tender Offer Proposal.

Japan Bumpitrage Potential: T&K Toka, IJTT, Taisho, Shidax, Benesse, Tokyo Rakutenchi

Japan’s merger arb is facing an unusual situation: six merger arb situations (>US$100 million market cap) where the shares have consistently traded through terms.
We evaluate the bumpitrage potential of these six Japanese merger arb situations on qualitative and quantitative metrics.
Based on our analysis, the ranking as measured by the highest bumpitrage potential in descending order are T&K Toka, IJTT, Taisho, Shidax, Benesse and Tokyo Rakutenchi.

Full Report – Lifull (2120 JP)

LIFULL runs the LIFULL Home’s real estate website. Compared to its main rival, whose strategy is focused mainly on the quantity of listings, LIFULL’s aim is to achieve greater quality, as measured by the percentage of inquiries that lead to sales for professional real estate clients.
While others primarily charge a fixed fee for listings, LIFULL charges a combination of fixed fees and incentive fees based on the number of inquiries received for a listing.
Compared to its main rival LIFULL tends to invest more heavily in software development and considerably less on advertising.

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Dec 20

Daily Brief Japan: JSR Corp, Oriental Land, Asagami Corp, Mizuho Financial Group, Kurabo Industries, TSE Tokyo Price Index TOPIX, Tsuruha Holdings and more

In today’s briefing:

JSR (4185) – Deal Approval Unexpectedly Delayed, As Expected
Oriental Land: Approaching the Tipping Point
Asagami Corporation – Example of Widespread Undervaluation of Land on Japanese Balance Sheets
Japanese Banks – No Change to Our Bullish View on the Back of the BoJ’s Pause on Interest Rates
Kurabo (3106) – Bigly Buyback And Share Cancellation for A Valueful Value Trap With Hidden Value
Is the Rise in TOPIX Anticipating the Actual Rise in ROE+DOE?
Tsuruha: What Next: Go Private or Aeon?

JSR (4185) – Deal Approval Unexpectedly Delayed, As Expected

Today after the close, JSR Corp (4185 JP) announced that the expected “end-December” commencement of JIC’s Tender Offer to take the company private would be delayed.
This was somewhat expected to widely expected based on initial FUD which then gave way to “specialised reporting” a couple of weeks ago which indicated as much.
Here I look at potential implications, spreads, and risks. And it still looks like one has to let it run (and buy a dip).

Oriental Land: Approaching the Tipping Point

By Oshadhi Kumarasiri

Google Search trends for Tokyo Disneyland and DisneySea in recent months point to potential vulnerabilities in Oriental Land’s FQ3 performance.
Tokyo Disneyland’s rising ticket prices have narrowed the cost gap with Shanghai and Hong Kong Disneyland, potentially leading to a loss of customers to its counterparts.
Should Oriental Land (4661 JP) shares fail to surpass its recent peak in January next year, we think shares could undergo a rather substantial correction.

Asagami Corporation – Example of Widespread Undervaluation of Land on Japanese Balance Sheets

By Altay Capital

Asagami Corporation (TYO 9311) owns 3 warehouses on Tokyo Harbor with land carried on its books at ¥7.9 billion.
These properties alone are likely worth closer to ¥29.5 billion.
These assets account for less than half of the company’s land assets, but are worth multiples of the current market cap of just ¥7.16B.

Japanese Banks – No Change to Our Bullish View on the Back of the BoJ’s Pause on Interest Rates

By Victor Galliano

We see Ueda’s pause on lifting its negative rates policy as temporary, and we expect that this policy change could occur as early as January
Despite this monetary pause in tightening and the fall in 10Y JGB yields, we are encouraged by the rise in long term loan yields in the BoJ data to October-end
We reiterate our positive views on Resona, Mizuho, MUFG and Concordia

Kurabo (3106) – Bigly Buyback And Share Cancellation for A Valueful Value Trap With Hidden Value

Kurabo announced a bigly buyback on Tuesday. At last price it is equivalent to 8+% of shares out. Most likely to target buybacks from cross-holders.
The company is not cash-rich, but it is financial asset and real estate-rich. And it trades at cheap multiples without even thinking about those assets (themselves worth the market cap).
The TSE’s “PBR1 OR BUST” movement combined with starting low valuation, high payout, excess assets, mean this value trap has room to move.

Is the Rise in TOPIX Anticipating the Actual Rise in ROE+DOE?