Japan

In today’s briefing:

New Benefit One Deal Recalculated, More Benefit for All, Less for One
Pasona Is Up Bigly. More To Come
Kasumigaseki Capital (3498 JP) – An Offering Worth Examining
KOSAIDO Holdings (7868) – Showcasing Growth Through Competitive Advantage
Hamamatsu Photonics (6965 JP): Buy into Current Weakness
EQD | Nikkei 225 WEEKLY Analysis

New Benefit One Deal Recalculated, More Benefit for All, Less for One

The deal from Dai-Ichi Life for Benefit One Inc (2412 JP) appears language I did not get the first time around. The JPY 1800/share price is a proposed combined value.
The deal would then lower the TOB price to Pasona, and share the benefits from that lower price to Benefit One minorities.
That suggests more upside to Benefit One than I originally thought, and less upside (but still a chunk) to Pasona.

Pasona Is Up Bigly. More To Come

After M3 Inc (2413 JP) announced an intention to buy 51.16%-55.00% of Benefit One Inc (2412 JP) via a partial Tender Offer at ¥1,600, Pasona Group (2168 JP) took off.
Now Dai Ichi Life Insurance (8750 JP) has countered with an unsolicited ¥1,800/share Offer of Equity Value; TOB followed by a Benefit One buyback to mop up Pasona’s stake.
The big news is how tax would be applied under Dai Ichi’s deal structure, which should see Pasona’s net proceeds significantly exceed those under M3’s Offer.

Kasumigaseki Capital (3498 JP) – An Offering Worth Examining

Kasumigaseki Capital is a small cap consulting real estate speculator/developer. They have an interesting, aggressive model. People will recognise the model from pre-GFC but this one is structured better.
The company had planned explosive growth and in October, brought growth plans forward and guidance way up. Now there is an offering to fund that growth.
It appears to also be an offering to get a very large short position out of a risk of potential squeeze. For that, I expect this goes smoothly.

KOSAIDO Holdings (7868) – Showcasing Growth Through Competitive Advantage

Capitalizing on growth opportunities – Q1-2 FY3/2024 results were ahead of company guidance, driven by the Funeral Services segment, as attendee numbers and refreshment sales grew, and new funeral hall openings saw higher than expected utilization rates.
We believe this indicates the strong competitive positioning the company has as the market-leading funeral services operator in the Tokyo metropolitan area.
With effective cost control in the Information and HR segments, the company has high earnings visibility and raised FY3/2024 company guidance, as well as increasing the planned dividend payout ratio to 32.5% from 30%.

Hamamatsu Photonics (6965 JP): Buy into Current Weakness

By Scott Foster

The shares are down 27% from their May high, largely discounting excessive inventory and a decline in profits that is likely to continue through next March or June.
Inventory adjustment, the revival of semiconductor, factory automation and medical related demand, plus the leveling off of depreciation, should enable a return to growth after that.
Projected valuations are at the low end of their 10-year ranges. Buy into the current weakness, keeping in mind that 1Q results are likely to be weak.

EQD | Nikkei 225 WEEKLY Analysis

By Nico Rosti

The Nikkei 225 (NKY INDEX) closed the week down (CC=-2) at 32307.86, it’s OVERSOLD, WEEKLY and MONTHLY.
Our hypothesis is that this pullback is about to end (it could last maybe another week, or maybe it’s already over…), and will be followed by higher prices.
Go LONG the Nikkei 225 in the support area between 31000 and 32000, this coming week.

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Dec 08

Daily Brief Japan: Benefit One Inc, Pasona Group, O S Co Ltd, Sapporo Holdings, Rakuten Group , COPRO-HOLDINGS Co Ltd, Aoyama Zaisan Networks Co Lt and more

In today’s briefing:

Dai-Ichi Life (8750) Proposes a Full Takeover of Benefit One (2412), Overbidding M3
New Deal for Benefit One (2168) Could Mean Lots More Money for Pasona (2168)
Benefit One (2412 JP): Dai-Ichi Life Counters M3 with a Privatisation Offer
Hankyu Hanshin Takeout of OS Corp
2024 High Conviction: Sapporo Poised for a Strong Year Driven by Tax Revision & Investor Activism
Cash Generation from the Sale of Subsidiary Shares Is the Default, but the Issue Remains Postponed
2Q Follow-Up – Copro-Holdings (7059 JP)
Aoyama Zaisan Networks Company (8929JP) – Focusing on the Quality of Earnings

Dai-Ichi Life (8750) Proposes a Full Takeover of Benefit One (2412), Overbidding M3

Today post-close, life insurer Dai Ichi Life Insurance (8750 JP) announced plans to launch a Tender Offer to buy out all minorities in Benefit One Inc (2412 JP) at ¥1,800/share.
M3’s Partial (55%) Tender at ¥1,600/share ending next week is obviously a question.
This is GREAT news for M&A in Japan. It’s good for holders of Benefit One and Pasona Group (2168 JP) too.

New Deal for Benefit One (2168) Could Mean Lots More Money for Pasona (2168)

Today, Dai Ichi Life Insurance (8750 JP) announced a proposed counter/over-bid for Benefit One Inc (2412 JP). ¥1800/share for minorities and a better (undefined) outcome for Pasona Group (2168 JP).
This throws the cat amongst the pigeons as it is unsolicited, for 100% not just to get Pasona’s stake, and it will require Benefit One recommend or not.
For Pasona, this deal structure would likely increase the net result from the stake sale, possibly substantially so. It’s in the details.

Benefit One (2412 JP): Dai-Ichi Life Counters M3 with a Privatisation Offer

Dai Ichi Life Insurance (8750 JP)‘s pre-conditional tender offer for Benefit One Inc (2412 JP) is JPY1,800 (floor price) + share of Pasona Group (2168 JP)’s TOB tax benefits.
The pre-conditions relate to the Board recommendation, Pasona support, and M3 Inc (2413 JP) offer not completing its partial offer. The tender offer starts in mid-January 2024 (20 business days).
While the Dai-ichi Life offer is light, M3’s engagement in a bidding war is low. The proposed minimum acceptance condition (15.51% ownership ratio) requires a 32% minority acceptance rate.

Hankyu Hanshin Takeout of OS Corp

The flip-side of the Toho Takeout of Rakutenchi – Buying a Real Estate Portfolio at a 50% Premium but 0.7x NAV. is the Hankyu-Hanshin deal to buy OS Corp (9637).
Tokyo-Based Toho buys out Kansai-based Hankyu-Hanshin’s stake in Tokyo-based Rakutenchi. HH buys out Toho’s stake in Kobe-based OS Corp. This is a “TOB Swap”. HH owns 21.7% of Toho too.
Like Rakutenchi, it is being done at a PBR higher than 1, but a decent discount to NAV. But this one is horribly, horribly illiquid (1,000 shs/day)

2024 High Conviction: Sapporo Poised for a Strong Year Driven by Tax Revision & Investor Activism

By Oshadhi Kumarasiri

Buoyed by strong post-pandemic domestic consumption and the return of inbound visitors to Japan, Sapporo Holdings (2501 JP) has been firing on all cylinders in recent quarters.
Business fundamentals for next year look strong, with the company positioned to benefit the most from Japan’s liquor tax revisions.
Additionally, activist investor 3D Investment Partners could successfully advance their proposals to divest the Real Estate business.

Cash Generation from the Sale of Subsidiary Shares Is the Default, but the Issue Remains Postponed

By canceling the IPO of Rakuten Securities, it is assumed that Rakuten Group wanted to generate cash on schedule even if it was 10 billion yen less than originally planned.
Although Rakuten Group could generate cash in the predetermined time. it remains unclear whether the company has secured a path to improve cash flow in the pending cell phone business.
If Rakuten Securities went to public, another parent-subsidiary listing would have been created, so the cancellation of the IPO can be evaluated as positive for the quality of the market.

2Q Follow-Up – Copro-Holdings (7059 JP)

By Sessa Investment Research

COPRO-HOLDINGS. Co., Ltd., (COPRO) announced its 2Q FY24/3 results after market close on Tuesday, November 14, 2023.
Key consolidated figures included net sales of ¥11,137 mn (+28.5% YoY), operating profit of ¥737 mn (+56.9% YoY), ordinary profit of ¥810 mn (+71.8% YoY), and net income attributable to the parent company of ¥510 mn (+81.9% YoY).
Sales were largely in line with initial forecasts, while profits were 61.4% higher than initial forecasts, mainly due to lower back-office-related labor costs.

Aoyama Zaisan Networks Company (8929JP) – Focusing on the Quality of Earnings

A positive surprise – Q1-3 FY12/2023 results highlighted the positive demand environment for AZN’s services, with Inheritance consulting sales growing 47.1% YoY driven by new customer acquisitions.
The company’s aim to improve the quality of earnings is demonstrated by improvements in underlying profitability with the sales mix shifting towards Wealth Consulting, while Real Estate Solutions provides cross-selling opportunities and strong access to engage with new customers.
The company has revised its FY12/2023 earnings estimates and on track to book record-high earnings, and has currently maintained its FY dividend forecast of ¥41 per share.

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Dec 07

Daily Brief Japan: Rakuten Bank , Harmonic Drive Systems, Tokyo Rakutenchi, Japan Airlines, Denso Corp and more

In today’s briefing:

Rakuten Bank (5838 JP) Overnight Offering at a Fat Discount
Toyota To Sell Harmonic Drive (6324 JP) Shares in Overseas Offering
Rakuten Bank Placement – Was Expected at Some Point, Current Timing Seems Opportunistic
Rakuten Bank (5838 JP) Placement: Index Inclusion Will Absorb Some Stock
Harmonic Drive Placement – Cleanup Share Sale Will Remove the Overhang
Toho Takeout of Rakutenchi – Buying a Real Estate Portfolio at a 50% Premium but 0.7x NAV.
Tokyo Rakutenchi (8842 JP): Toho’s Tender Offer at JPY6,720
Japan Airlines (9201 JP, BUY, TP: JPY3150): Slow, Steady, Stable Recovery
Denso Corp Placement – Not Quite Shaping up for a Win Yet

Rakuten Bank (5838 JP) Overnight Offering at a Fat Discount

After the close today, Rakuten Group (4755 JP) announced the sale of 25.5mm shares of Rakuten Bank (5838 JP), right as the IPO lockup was reaching its expiry. Expected.
Pricing is 6-7 Dec (pre-Tokyo open 7 Dec), delivery 11 Dec 2023. Indicative price range is 8.5-12.5% discount for a deal of US$425mm or so.
In an interesting technical detail, this will take Rakuten below 50%. There is some near-term index demand, some in April, some next October. Rheos could be more overhang.

Toyota To Sell Harmonic Drive (6324 JP) Shares in Overseas Offering

Today, Toyota Motor (7203 JP) announced it would sell 4.379mm shares (4.55%) of Harmonic Drive Systems (6324 JP) in an overseas placement.
This is not so big as it is emblematic, adding to the recent news on Toyota unwinds.
Harmonic Drive is heavily held by foreign institutions. This is a foreigners-only deal. But it will need to be absorbed by that group too.

Rakuten Bank Placement – Was Expected at Some Point, Current Timing Seems Opportunistic

Rakuten Group (4755 JP) aims to raise US$430m via selling around 14.6% of Rakuten Bank (5838 JP).
RB is the largest internet bank in Japan, by number of accounts. As of Sep 23, it had 14.3m deposit accounts with a total deposit base of JPY9.5tn.
In this note, we will talk about the deal dynamics and updates since our last note.

Rakuten Bank (5838 JP) Placement: Index Inclusion Will Absorb Some Stock

By Brian Freitas

Rakuten Group (4755 JP) is looking to sell 25.5m shares of Rakuten Bank (5838 JP) via a secondary offering at a discount of between 8.7%-12.3%.
The offering will raise a maximum of US$433m and Rakuten Group (4755 JP) will use the funds to reduce its interest-bearing debt by the early repayment of its bonds.
There will be limited passive buying at the time of settlement of the stock but there is an index inclusion coming up that will result in passives buying.

Harmonic Drive Placement – Cleanup Share Sale Will Remove the Overhang

By Clarence Chu

Toyota Motor (7203 JP) is looking to raise US$116m from selling its entire stake in Harmonic Drive Systems (6324 JP).
Toyota Motors has indicated over the past one-two weeks that it will be looking to sell/trim its stakes in various entities as part of its exit from its multiple cross-holdings.
While the deal would be a relatively large one to digest at 10 days of ADV, Toyota Motors will be selling its entire stake, clearing the overhang.

Toho Takeout of Rakutenchi – Buying a Real Estate Portfolio at a 50% Premium but 0.7x NAV.

Yesterday, Tokyo Rakutenchi (8842 JP)‘s #1 shareholder Toho Co Ltd (9602 JP) agreed to buy out the rest of Tokyo Rakutenchi from its #2 and #3 shareholders and minorities.
The Takeover Price is a 51% premium. Which is nice. But the asset is a real estate portfolio, and it was sold as a company, not a real estate portfolio.
The revaluation surplus to market value for the real estate assets is more than net equity, so Takeover PBR >1.0, but Price/NAV of the takeover is 0.7x, without synergies included.

Tokyo Rakutenchi (8842 JP): Toho’s Tender Offer at JPY6,720

Tokyo Rakutenchi (8842 JP) has recommended Toho Co Ltd (9602 JP)’s tender offer of JPY6,720 per share, a 51.5% premium to the undisturbed (6 December).
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 24.29% ownership ratio.
Based on the irrevocables, the minimum acceptance condition requires a 30.2% minority acceptance rate. This acceptance rate is doable as the offer represents a ten-year high.

Japan Airlines (9201 JP, BUY, TP: JPY3150): Slow, Steady, Stable Recovery

By Mohshin Aziz

Japan Airlines (9201 JP) (JAL) is making a positive recovery on strong domestic and international demand
Weak JPY is a big headwind and so is its 40% fuel hedge cover locked in at higher than-market price. These factors should reverse and unwind next year
Target price JPY3,150 based on 1.65x FY24 P/BV – one standard deviation above its mean. Borderline attractive with 12% UPSIDE, and 2.3% dividend yield

Denso Corp Placement – Not Quite Shaping up for a Win Yet

On 28th Nov 2023, Toyota (7203 JP) announced that it would sell around 9.4% of Denso (6902 JP) in order to reduce its cross-shareholding.
Since then the shares haven’t corrected by much, as compared to prior large secondary deals.
We have covered the deal background in our earlier notes. In this note, we talk about deal dynamics, as compared to prior deals.

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Dec 06

Daily Brief Japan: Ps Mitsubishi Construction, Ryohin Keikaku, Medikit Co Ltd, Nikkei 225, TSE Tokyo Price Index TOPIX and more

In today’s briefing:

P.S.Mitsubishi Contruction (1871 JP) – Pro-Ration Expectations Update
Nikkei 225 Index Rebalance Preview (Mar 2024): Update on Ranking, Capping, Funding & Other Changes
Medikit (7749 JP) Below Market Tender Offer Buyback
EQD | Nikkei 225 MONTHLY Analysis
Still Many “Parent-Subsidiary Listings” Keep to Provide Investment Opportunities for Inefficiencies

P.S.Mitsubishi Contruction (1871 JP) – Pro-Ration Expectations Update

The Partial Offer launched last month by Taisei Corp (1801 JP) to take a 50.2% stake in Ps Mitsubishi Construction (1871 JP) ends at the beginning of next week.
This hasn’t been a very “exciting” trade. Small, boring sector. One big company selling to another. But it has traded cheap. However, volume has been high.
Volume has been so high it causes me to revisit my pro-ration expectations, so I have updated estimates and tables below.

Nikkei 225 Index Rebalance Preview (Mar 2024): Update on Ranking, Capping, Funding & Other Changes

By Brian Freitas

The review period for the Nikkei 225 (NKY INDEX) March rebalance ends end January. There could be three changes at the rebalance with sector balance in focus.
Depending on the changes, passives trackers will need to buy 2.4-22.5x ADV (10-24% of real float) on the inclusions and sell between 3.5-42.5x ADV on the deletions.
Fast Retailing (9983 JP) capping, Nitori Holdings (9843 JP) increase in PAF, a big funding trade, and potentially new stocks being added in two-steps.

Medikit (7749 JP) Below Market Tender Offer Buyback

Japanese medical products maker Medikit Co Ltd (7749 JP) Tuesday announced a buyback of ~12% of its shares from the founder’s company.
The stock is extraordinarily illiquid. 12mo ADV is <US$40k/day. But Medikit runs 40% gross margins, 20% EBIT margins, and trades at an EV/revenue ratio of ~0.8x. It’s cash-rich, and cheap.
But it’s an interesting situation. The buyback (and its reason) combined with the shareholder structure allow me to idly speculate this is an MBO candidate.

EQD | Nikkei 225 MONTHLY Analysis

By Nico Rosti

After a strong rally in November, the Nikkei is currently in a temporary corrective phase, reaching between the Q1 and Q2 support levels of the MRM LONG chart.
There are 2 possible paths from here: 1) a modest pullback, followed by a rally into the end of December, 2) a dive to <= 31672, and December closes down.
Both these scenarios offer very good seasonal LONG odds for January closing up (based on our SRM model), so we suggest going LONG the Nikkei 225 on the pullback.

Still Many “Parent-Subsidiary Listings” Keep to Provide Investment Opportunities for Inefficiencies

Maintaining a parent-subsidiary listing that fails to ensure the interests of minority shareholders indicates that the parent company is willing to tolerate dysfunctional corporate governance of the subsidiary.
Parent-Subsidiary listings drain the profits of profitable subsidiaries from the parent company, reducing profits and corporate value. The solution to this problem is to eliminate parent-subsidiary listings.
The elimination of parent-subsidiary listings through TOB will reduce market inefficiencies and improve the quality of TSE-listed companies.

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Dec 05

Daily Brief Japan: Benefit One Inc, Nexon, Seven & I Holdings, Sanyo Trading, LaKeel and more

In today’s briefing:

Benefit One (2412) – Pro-Ration Expectations Update
Korean Government Launches a Tender Offer to Sell a 29.3% Stake in NXC Corp for US$3.6 Billion
Seven & I Ventures Down Under with 7-Eleven Australia Acquisition
Sanyo Trading (3176 JP) – Aiming to Elevate to a Higher-Quality Business
LaKeel (4074 JP) – Highlighting Opportunities and Acknowledging Challenges

Benefit One (2412) – Pro-Ration Expectations Update

Since the announcement of the Benefit One Inc (2412 JP) partial offer, the stock has traded 16+mm shares in the market, which is about 40% of Real World Float.
Some of that has been traded multiple times. Looking only at that data would suggest a higher pro-ration, but I expect there is other data one must take into account.
Benefit One shares are currently trading at a level suggesting either lower participation OR higher back-end despite the earnings guidance downgrade at announcement.

Korean Government Launches a Tender Offer to Sell a 29.3% Stake in NXC Corp for US$3.6 Billion

By Douglas Kim

On 4 December, the South Korean government announced that it will launch a tender offer to sell a 29.3% stake in NXC Corp for about US$3.6 billion.
The two daughters of ex-Chairman Kim Jung-Ju handed over a 29.3% stake in NXC Corp to the Korean government as payment-in-kind in May 2023 to pay for inheritance taxes.
The tender offer sale of the Korean government’s 29.3% stake in NXC Corp (worth nearly 4.7 trillion won) is a positive catalyst for Nexon (3659 JP).

Seven & I Ventures Down Under with 7-Eleven Australia Acquisition

By Oshadhi Kumarasiri

Seven & I Holdings (3382 JP) announced last week that it had agreed to buy the 7-Eleven convenience store chain in Australia for A$1.71bn ($1.1bn).
The acquisition may not immediately impact Seven & I’s stock price like Speedway did, given its smaller scale, lack of synergies, and less favorable macroeconomic conditions.
The main positive takeaway from this news is that the acquisition price for 7-Eleven Australia is not as extravagant as the amount Seven & I paid for the Speedway acquisition.

Sanyo Trading (3176 JP) – Aiming to Elevate to a Higher-Quality Business

Business investment and targeting growth – we view Sanyo Trading’s new long-term plan as a step in the right direction for the company to become a higher-quality business.
Whilst investment activities and macro headwinds may limit short-term growth prospects, the company has indicated ¥20bn to ¥30bn 5-year cumulative allocation in human capital, DX implementation, and M&A, which should drive transformation into a more diversified and resilient business.
This commitment by management demonstrates its aim to drive higher returns by leveraging its core strengths of product differentiation, strong technical staff, and maintaining high customer success in new products and activities.

LaKeel (4074 JP) – Highlighting Opportunities and Acknowledging Challenges

Results highlighting both strengths and limitations – Q1-3 FY12/2023 results were below expectations, with the company experiencing a delay and potential cancellation of a large license sale, which had a negative knock-on effect on related Consulting demand.
FY12/2023 company guidance has been revised to reflect lowered earnings visibility.
Although this highlights the need for the company to strengthen business model resilience, growth in DX-related in-house LaKeel Products remained stable with sales up 19.3% YoY.

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Dec 04

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

In today’s briefing:

March 2024 Nikkei 225 Rebal – Socionext, Disco, and a Consumer Goods Stock to ADD and ¥1trn To Trade
Taisho Pharmaceutical (4581 JP): Japan Catalyst Pushes for a Bump
MBOs Would Open the Door to Investment for Companies that Weren’t Invested for Fear Of “Value Trap”

March 2024 Nikkei 225 Rebal – Socionext, Disco, and a Consumer Goods Stock to ADD and ¥1trn To Trade

Minimal changes in the rankings since last time. Socionext (6526), Disco (6146), and a Consumer Goods stock (Zozo (3092) top-ranked, Ryohin Keikaku (7453) a better choice) are ADDs.
The DELETEs are still Takara Holdings (2531), Pacific Metals (5541), Sumitomo Osaka Cement (5232) with a dark horse candidate in Hitachi Zosen (7004) to replace Takara.
There is the upweight to Nitori (9843) AND funkiness with Fast Retailing (9983) to consider. We are right on the threshold. The question is whether it gets “help” in January.

Taisho Pharmaceutical (4581 JP): Japan Catalyst Pushes for a Bump

Japan Catalyst’s press release supports the idea of a Taisho Pharmaceutical Holdin (4581 JP) MBO but not the proposed offer price as it implies a P/B less than 1.0x.
The press release is a discovery exercise encouraging other like-minded shareholders to show their hand. The shares are trading marginally above the JPY8,620 offer.
While justifiable, a bump is unlikely due to the lack of a substantial activist shareholder, irrevocables, no competing bid and the offer’s 55.5% premium to the undisturbed price.

MBOs Would Open the Door to Investment for Companies that Weren’t Invested for Fear Of “Value Trap”

The fact that many IPO companies either don’t need to raise capital or don’t share the same goal of going public is the crux of the problem.
It would be conducive to improving quality of TSE as a whole if companies that cannot share the objectives of a listed company with shareholders are delisted through an MBO.
An MBO by the founding family would open the door to investment for companies that have been unable to invest for fear of falling into the “value trap.”

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Dec 03

Daily Brief Japan: Taisho Pharmaceutical Holdin, Cosmo Energy Holdings , Denso Corp, D.Western Therapeutics Institute Inc. and more

In today’s briefing:

Japan Activism: Japan Catalyst Fund Calls Out Taisho Pharma Committee on MBO Price
Mischief Managed! Iwatani Corp (8088) Buys Out Murakami-San’s Cosmo Energy Stake
Last Week in Event SPACE: Denso, Sapporo, Hollysys, PCCW, Origin Energy
3Q Follow-Up – D. Western Therapeutics Institute (DWTI) (4576 JP)
Weekly Deals Digest (03 Dec) – Denso, T&K Toka, CIMC Vehicles, Origin, OreCorp, Hollysys, BPLANT
ECM Weekly (3rd Dec 2023) – Denso, Toyota, Zensho, Asahi, Kotak, Zomato, Zeekr, Tatatech, IREDA

Japan Activism: Japan Catalyst Fund Calls Out Taisho Pharma Committee on MBO Price

Japan Catalyst Fund is a relatively young effort in the Japan “engagement activism” space, having been founded by Monex Group in September 2019. Total assets remain apparently small.
Championed by Monex Group founder Oki Matsumoto, despite small AUM, the fund has decent access. As of end-October, Taisho Pharmaceutical Holdings (4581 JP) was #5 and 5.26%. Now it’s #2.
Friday, they released a statement about the MBO. It isn’t a barn-burner, but the stock has traded through terms since announcement at a too-low price. And nobody else has commented.

Mischief Managed! Iwatani Corp (8088) Buys Out Murakami-San’s Cosmo Energy Stake

The question of how Murakami-san would get out of his stake in Cosmo Energy Holdings (5021 JP) was always a biggie. He likes to sell stock in tender offer buybacks.
Cosmo wasn’t going to do that for him. They promised dividends and a high payout ratio, but that left the question was how he was going to get out.
A semi-obvious solution was to find a corporate partner to buy his stake and today, Iwatani Corp (8088 JP) announced that it had bought 19.86% of Murakami-san’s 20.01% holding.

Last Week in Event SPACE: Denso, Sapporo, Hollysys, PCCW, Origin Energy

A holistic view of the three different documents here suggests the Denso Corp (6902 JP) buyback, indeed, “It was a trap”.
3D Investment Partners raised its stake in Sapporo Holdings (2501 JP), suggesting the activist investor is optimistic about successfully advancing their proposals.
A firm merger proposal is expected for Hollysys Automation Technologies (HOLI US) in the next couple of weeks. Time to buy.

3Q Follow-Up – D. Western Therapeutics Institute (DWTI) (4576 JP)

By Sessa Investment Research

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) 2023 application, 2024 approval and 2025 launch of DW-1002 in Japan, 2023 application/approval/launch in China, as well as expedited development of combination formula MembraneBlue-DualR (DW-1002 + trypan blue) in the US [NEW]
3) clinical trials in 2024 in Japan and application for approval in 2025 of regenerative cell medicine DWR-2206

Weekly Deals Digest (03 Dec) – Denso, T&K Toka, CIMC Vehicles, Origin, OreCorp, Hollysys, BPLANT

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 – Denso Corp (6902 JP)‘s US$4.0 Billion Secondary Offering and US$1.4 Billion Buyback.
Event-Driven developments – CIMC Vehicle Group Co Ltd (1839 HK), Origin Energy (ORG AU), Orecorp Ltd (ORR AU), Hollysys Automation Technologies (HOLI US), Boustead Plantations (BPLANT MK).

ECM Weekly (3rd Dec 2023) – Denso, Toyota, Zensho, Asahi, Kotak, Zomato, Zeekr, Tatatech, IREDA

Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
In the IPO space, Tata Technologies and IREDA continued the India IPO juggernaut.
On the placements front, there seems to be no stopping Japan flows.

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Dec 02

Daily Brief Japan: Mizuho Financial Group, Monogatari Corp and more

In today’s briefing:

Japanese Banks – Our Main Thoughts Post 2Q23 Results
A Company in Japan Confirms That “Companies that Take Care of Sexual Minorities Are More Profitable”

Japanese Banks – Our Main Thoughts Post 2Q23 Results

By Victor Galliano

We focus on five key factors, namely capital adequacy, credit quality, exposure to government securities, interest rate gearing and valuation with growth metrics for our Japanese banks universe
It is important to note that the relaxation of yield curve control is translating into rising loan yields generally in the BoJ data to September-end 2023
We stick with our positive views on Resona, Mizuho and Concordia; we remove Hachijuni from the buy list and SMFG, replacing the latter with MUFG in the large cap banks

A Company in Japan Confirms That “Companies that Take Care of Sexual Minorities Are More Profitable”

Many LGBTQ have been harassed during their job search, and while hiring managers are under-prepared, Monogatari Corporation is one of the few companies that is committed to LGBTQ human rights.
Monogatari Corporation believes that the diversity of individuals is the foundation for creating value, and that a series of individual differentiation enhances the company’s competitive advantage as a major differentiation.
Monogatari Corporation’s high profit margins and sustained growth give hope that the hypothesis that “companies that care about sexual minorities are more profitable” may be supported.

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Dec 01

Daily Brief Japan: Denso Corp, Ito En Ltd Preferred Shares, Sapporo Holdings, CyberAgent Inc, Taisho Pharmaceutical Holdin, Kobayashi Pharmaceutical Co, Toyota Motor Corp Spon Adr and more

In today’s briefing:

Denso – Thoughts On The Cross-Holdings Sell-Down
Itoen Pref (25935 JP) – Big Discount, Big Buyback, No Big Governance Change
Sapporo Holdings: Activist Investor 3D Investment Partners Assumes Majority Ownership
2024 High Conviction – CyberAgent: Worst Seems to Be Over
(Mostly) Asia M&A, Nov 2023: Taisho Pharma, CIMC Vehicle, CMIC, Japan Best Rescue, Shidax
Kobayashi Pharmaceutical Co (4967 JP): Q3 Shows Early Signs of Business Revival; Aims Big for US
Toyota Motor Corporation: Market Dynamics in China & the Impact on Toyota’s Electric Vehicle Strategy! – Major Drivers

Denso – Thoughts On The Cross-Holdings Sell-Down

By Mio Kato

The trend of governance reform in Japan continues with Toyota, Toyota Industries and Aisin selling shares of Denso.
Denso is buffering some of the flow impact by repurchasing roughly half of the shares to be sold.
While the size of these moves is relatively large we believe their impact could be disproportionately large for the market as a whole.

Itoen Pref (25935 JP) – Big Discount, Big Buyback, No Big Governance Change

By Shifara Samsudeen, ACMA, CGMA

This is always a tough subject, but every now and then I throw myself on the mercy of the ho-humming crowd and write about the Ito En Prefs (25935 JP).
No strong catalyst. Limited capacity for strongly better governance. Even less apparent corporate interest in good governance.
But we have a mini-catalyst, and it has been a while, and I think there IS a good way to think about this stock, so here’s another crack at it.

Sapporo Holdings: Activist Investor 3D Investment Partners Assumes Majority Ownership

By Oshadhi Kumarasiri

Last week, activist investor 3D Investment Partners raised its stake in Sapporo Holdings (2501 JP) by an additional 13%, cementing its position as the majority shareholder in the business.
This suggests the activist investor is optimistic about successfully advancing their proposals.
If investment properties are sold or spun off, and Alcoholic Beverages and Food & Soft Drinks undergo the suggested turnaround, we anticipate an additional 80-100% upside in the near term.

2024 High Conviction – CyberAgent: Worst Seems to Be Over

CyberAgent Inc (4751 JP) (CA) is a Japan-based media and entertainment company offering media, internet advertising, smart games and investment development businesses in Japan.
The gaming business of the company has collapsed with the slowdown of hit title UMA MUSUME while titles released after UMA MUSUME have failed to perform satisfactorily.
Profitability of Internet advertising and media are expected recover and seems that worst is over for the games business as several titles are slated for release in the near future.

(Mostly) Asia M&A, Nov 2023: Taisho Pharma, CIMC Vehicle, CMIC, Japan Best Rescue, Shidax

For the month of November 2023, 16 new deals (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$13bn.
The average premium for the new deals announced (or first discussed) in November was 41%. The average YTD is 38% (97 deals).
This compares to the average premium for all deals in 2022 (106 deals), 2021 (165 deals), 2020 (158 deals), and 2019 (145 deals) of 41%, 33%, 31%, and 31% respectively.

Kobayashi Pharmaceutical Co (4967 JP): Q3 Shows Early Signs of Business Revival; Aims Big for US

By Tina Banerjee

Kobayashi Pharmaceutical Co (4967 JP) witnessed business revival in Q3, especially in the domestic household and the U.S. business. In Q3, revenue increased 6% YoY and 13% QoQ to ¥45.4B.
Kobayashi has reiterated FY24 guidance. The company has guided for FY24 revenue of ¥172.0B (+4% YoY), operating income of ¥25.5B (-4% YoY), and net profit of ¥20.2B (-1% YoY).
By establishing the supplement business in North America and further expanding OTC medicines, the company aims to achieve sales of ¥34B in the U.S. in 2030, including ¥16B from healthcare.

Toyota Motor Corporation: Market Dynamics in China & the Impact on Toyota’s Electric Vehicle Strategy! – Major Drivers

By Baptista Research

Toyota Motor Corporation delivered a positive result and managed an all-around beat in the last quarter.
Consolidated vehicle sales reached 114.1% of the previous fiscal year, totaling 4,744,000 units.
Toyota and Lexus brand vehicle sales amounted to 5,172,000 units, representing 109.1% of the same period last fiscal year.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

Nov 30

Daily Brief Japan: Denso Corp, Toyota Motor, Kurita Water Industries, Mitsubishi Motors, Santen Pharmaceutical, TSE Tokyo Price Index TOPIX, Golf Digest Online and more

In today’s briefing:

Huge Denso (6902) Secondary Sale by Toyota Group – Admiral Ackbar Says “It’s A Trap!”
Denso Offering, Buyback, and New Cross-Holding Reduction Policy – It WAS a Trap
StubWorld: Toyota Group To Sell 10% of Denso; Adelson Selling LVS
Denso (6902 JP): US$4.0 Billion Secondary Offering and US$1.4 Billion Buyback
Japan – A Last Look at Shorts on Some Interesting Stocks & Positioning
Denso Corp Placement – Toyota to Raise US$4.4bn, as Expected
Quiddity JPX-Nikkei 400 Rebal 2024: End-Nov 2023
Santen Pharmaceutical (4536 JP): Strong H1 Performance; FY24 Guidance Raise; Rich Pipeline
Headline Is Eye Catching, but the Revised Voting Criteria Do Not Affect Most Companies
3Q Follow-Up – Golf Digest Online (3319 JP)

Huge Denso (6902) Secondary Sale by Toyota Group – Admiral Ackbar Says “It’s A Trap!”

Yesterday, Reuters reported that multiple Toyota Group companies would sell ~10% of Denso Corp (6902 JP) worth ¥700bn in a secondary share sale by year-end.
The sellers would be Toyota, selling down to just over 20%, Toyota Industries (6201) (selling down a bit more than half, and Aisin Seiki (7259 JP) selling its 2% stake.
Denso would buy back shares. This whole thing is both interesting and complicated so I discuss the interesting complications below. It looks bigger than it probably is.

Denso Offering, Buyback, and New Cross-Holding Reduction Policy – It WAS a Trap

15 minutes after I published what I thought was a considered analysis, Denso dumps the details. I thought it might be a trap. It looks like a trap.
A holistic view of the three different documents here suggests, indeed, “It was a trap”.
This giant offering is not bearish overhang but likely tilts bullish with greenshoe support, a large buyback, a new cross-holding reduction policy, and the follow-on effects from that.

StubWorld: Toyota Group To Sell 10% of Denso; Adelson Selling LVS

The Toyota Group of companies are proposing to reduce their holdings in Denso (6902 JP) by selling about 10% by year-end, in a share sale worth ~$4.7bn.
Preceding my comments on Toyota Industries (6201 JP) / Toyota Motor (7203 JP) – and Las Vegas Sands (LVS US) – are the current setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

Denso (6902 JP): US$4.0 Billion Secondary Offering and US$1.4 Billion Buyback

Denso Corp (6902 JP) announced a secondary offering of up to 294.8 billion shares (including overallotment) and a buyback (maximum shares of 125 million or maximum value of JPY200 billion).
Denso also announced a cross-holding reduction policy. In an unspecified timeframe, it will sell part of its holdings in Toyota Industries (6201 JP) and Aisin (7259 JP).
Looking at recent large Japanese placements is instructive to understand the potential offer price. The pricing date will fall between 13 and 18 December (likely 13 December).

Japan – A Last Look at Shorts on Some Interesting Stocks & Positioning

By Brian Freitas

There should be liquidity events on Persol Holdings, Hakuhodo Dy Holdings, Welcia Holdings, GMO Payment Gateway, CyberAgent, Kobayashi Pharmaceutical, NGK Insulators, Lixil Group, Kurita Water Industries and Keio Corp tomorrow.
On average, the stocks have underperformed the Nikkei 225 Index over the last 2-3 months but there has been near-term outperformance.
There has been a big increase in shorts on the stocks over the last couple of months and positioning varies across stocks.

Denso Corp Placement – Toyota to Raise US$4.4bn, as Expected

Following yesterday’s news release by Reuters that Toyota Motor (7203 JP) could sell up to 10% of Denso Corp (6902 JP), the deal was officially launched today.
Toyota is the company’s largest shareholder and its largest customer.
We have covered the deal background in our earlier note, Denso Corp Placement – Possible Placement by Toyota to Raise US$4.7bn. In this note, we talk about the final terms.

Quiddity JPX-Nikkei 400 Rebal 2024: End-Nov 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-November 2023.

Santen Pharmaceutical (4536 JP): Strong H1 Performance; FY24 Guidance Raise; Rich Pipeline

By Tina Banerjee

Santen Pharmaceutical (4536 JP) reported double-digit growth in revenue and core operating profit, and triple-digit growth in net profit in H1FY24. Overseas business grew 30% and remained the main driver.
Santen raised FY24 guidance for the second time due to the stronger-than-expected sales from overseas markets, reviewed impact of generics in Japan, and continued progress in company-wide cost optimizations.
Recently, the company has received European Commission approval for a new ophthalmic drug for lowering of intraocular pressure (IOP) in open-angle glaucoma and ocular hypertension.

Headline Is Eye Catching, but the Revised Voting Criteria Do Not Affect Most Companies