Japan

• As per Reuters, Toyota Motor (7203 JP) could look to sell up to 10% of Denso Corp (6902 JP) to raise around US$4.7bn before the end of the year.
• Toyota is the company’s largest shareholder and its largest customer.
• In this note, we will talk about the deal dynamics.

• There could be a US$4.6bn secondary placement in Denso Corp (6902 JP) before year-end as Toyota Motor (7203 JP), Toyota Industries (6201 JP) and Aisin Corp (7259 JP) unwind cross-holdings.
• Denso Corp (6902 JP) was down 4.85% yesterday (and even more intra-day) and the stock could remain under pressure for the next few weeks.
• There will be limited passive buying in conjunction with the secondary offering and active investors will need to buy a lot of stock.

• Two weeks ago, Asahi Group Holdings (2502 JP) revealed plans for a secondary offering, aiming to sell 33.48m common shares in international markets.
• In this insight, we delve into the fundamentals of the business, identifying an opportunity if the offering is priced at a decent discount compared to Asahi’s current price.
• We think recent price hikes and ongoing alcohol tax reforms position Asahi to outperform Kirin Holdings (2503 JP) in the next 3-4 years.

• Asics unveils MTP with focus on financial milestones: 7-10% Sales CAGR to 660 billion yen and Operating profit of 80 billion yen by 2026. 
• The biggest risk to the MTP looks to be market share goals in the US. However, we think overall sales and margin targets are achievable.
• The share price is up 80% YTD and stock is no longer cheap. However, plugging in the MTP assumptions into a DCF reveals further 17% upside

• Kaken Pharmaceutical (4521 JP) reported 2% YoY decline in revenue H1FY24, while operating profit decreased 33% YoY. Top selling products are impacted by NHI drug price revision and increasing competition.
• The company has reiterated FY24 guidance of flat revenue, 5% YoY decline in operating profit, and 23% YoY growth in net profit. Profitability is expected to deteriorate in H2.
• Kaken is not expected to see any immediate respite as the small contribution from the new products will not compensate for the revenue loss from its top selling products.

• Touting a mission of “improving people, companies, and society through marketing,” AViC is involved in the commissioned handling of internet advertising and provision of SEO (search engine optimization) consulting services with the goal of providing high quality digital marketing services to clients with small- to medium-sized advertising budgets.
• Having transformed FACT Inc., which offers support services for EC mall sales promotion optimization, into a wholly-owned subsidiary in October 2023, the company is also moving forward with mutually supplementing its lineup of services and conducting cross-sales to clients.

• The company’s competitiveness comes from (1) the deep understanding of various media algorithms possessed by its management team, particularly the company’s representative who was the chief executive of the internet advertisement business at CyberAgent, and content backed by experience and a track record

• Since the US$1.3 billion secondary placement announcement, Asahi Group Holdings (2502 JP)’s shares are down -6.2% from the undisturbed price of JPY5,804 per share (16 November).
• Looking at recent large Japanese placements is instructive to understand the potential trading pattern. So far, Asahi’s shares have followed the pattern of previous large placements. 
• The offering will likely be priced on 28 November. Investors participating in previous large Japanese placements tend to secure positive returns.

• T&K Toka Co Ltd (4636 JP) has satisfied the precondition of selling its Hangzhou Toka Ink stake to hold less than 30%. The offer is targeted for early January.
• Due to Dalton’s stake building, the shares have consistently traded above Bain’s pre-conditional JPY1,400 offer. Bain can either launch the tender with unchanged terms or bump the offer.
• A bump is likely as, despite the irrevocables, satisfying the minimum acceptance condition is challenging. The Board will struggle to recommend the offer if the shares remain above terms. 

• We are bullish on Recruit at the current share price and believe that the stock has around 40% upside potential to our fair value estimate of Y7,700.
• We believe that investors have been overly concerned with the cyclical slowdown in the job market as it normalizes from the post-Covid recovery
• Indeed.com remains a disruptor in the HR recruiting market and the potential monetization of this asset is significantly under-appreciated by the market.

• Today, Macnica Fuji Electronics Hol (3132 JP) (Macnica Holdings) announced that it would launch a tender offer to buy 100% of Glosel (9995 JP), a semiconductor trading company. 
• Glosel is special because it has three main assets. 1) 61% of net assets are inventory (<3mo), 2) 34% of net assets are net receivables (<3mos), 3) 8+% is securities.
• For that, Glosel’s Board decided 0.71x book was OK. Nah. The register is reasonably wide open, and this is a delayed start. Someone might get noisy, but < 50/50 bet.

• Amazon Netsuper is competing head to head with Rakuten’s online food platform in an online food sector that has grown 80% in four years. 
• Last month Amazon confirmed that Arcs, one of the largest supermarkets in Japan and the biggest in northern Japan, will join Life, Valor and Seijo Ishii in using its system.
• Arcs’ online supermarket was already growing strongly but the tie-up with Amazon will take it to the next level, helping to compete with Aeon and Rakuten.

• Since there’s little opposition to the argument that quarterly securities reports should no longer be mandatory, securities reports in 1Q/3Q are almost identical content to the disclosures to TSE.
• To ensure the reliability of the financial statements submitted to TSE, which are replacing current statutory documents, the requirement of review by auditor could be a solution to the problem.
• In this review, the addition of the cash flow statement and segment information in 1Q and 3Q financial statements is very useful and a step forward.

• A group of shareholders aims to raise US$1.3bn (JPY197.8bn) by selling their respective stakes in Asahi Group Holdings (2502 JP) via an extended secondary follow-on.
• We have covered the background of the deal in our earlier note, Asahi Group Placement – Relatively Small One when Compared to Previous Large JP Secondary Selldowns.
• In this note, we talk about the updates since and look at the performance of some of the past large Japan deals.

• Zensho Holdings (7550 JP) aims to raise around US$300m via a public offering.
• As per the company it will use the proceeds from the deal for potential M&A transactions.
• In this note, we will talk about the deal dynamics and run the deal through our ECM framework.

• In August, T&K Toka Co Ltd (4636 JP) announced a TOB by Bain with a clearance hurdle of selling a 3.51% stake in Hangzhou Toka Ink (SH:688571) before launch.
• Friday, the company announced that they put up a 3.6% stake for auction, with the sale to be executed that day. That likely triggers an early launch of the TOB.
• The TOB Price is offensively cheap at 0.63x “official” book, and 0.53x book adjusted for equity affiliate price. The shares have traded through terms since launch. This should get bumped.

• The carryback of pension obligations and expenses resulting from higher bond yields is a factor in the increase in operating profit.
• While this’ll lead to higher EPS, which should lead to higher dividends and more room for stock price appreciation, there’s concern that inflating the B/S will lead to stagnant ROE.
• In addition, since FY3/2024 profits will be boosted by pension financing factors unrelated to the core business, lower profit growth rate in FY3/2025 will put pressure on the stock price.

• Now the time decay to expected approvals and tender offer start for JSR Corp (4185 JP) are getting steep. Time to Fight The FUD.
• The accretion trade is going to plan as Prosus NV (PRX NA) sells Tencent (700 HK); and Prosus and Tencent both back their own shares.
• Hollysys Automation Technologies (HOLI US)‘s board capacity to sabotage calling an SGM has finally run out of puff.

• 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 – Asahi Group Holdings (2502 JP)‘s US$1.3 billion secondary offering; ZEEKR (ZK US), Tata Technologies (TATATECH IN) and Cainiao Smart Logistics Network (1437124D HK) IPOs
• Event-Driven developments – JSR Corp (4185 JP), Taisho Pharmaceutical Holdin (4581 JP), Origin Energy (ORG AU), Orecorp Ltd (ORR AU), Eoflow (294090 KS), Hollysys Automation Technologies (HOLI US). 

• Just past the 22-year anniversary of the deal-break from a previous takeover involving the large OTC drug firm, Taisho Pharmaceutical Holdin (4581 JP) announced an MBO Takeover for the company.
• Set at a 55.5% premium, it is not particularly surprising as a deal. The family is rolling in their interests. It looks like estate planning. The Board supports and recommends. 
• Unfortunately, like many recent MBOs, this one is light at 0.85 book where net cash, securities, and net receivables and inventory make up 68% of the takeover price. 

• Zensho Holdings (7550 JP) has had a great couple of years in share price movement. And this year is seeing earnings explode to new highs. M&A and FX.
• Now they want to build a “war chest” equivalent to 4% of market cap to go do more M&A. 
• This seems opportunistic. And the shareholder register is extraordinarily lopsided. There is really only one buyer for this deal.

• Taisho Pharmaceutical Holdin (4581 JP) has recommended an MBO tender offer of JPY8,620 per share, a 55.5% premium to the undisturbed (24 November). 
• The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the tender offer is set at a 66.67% ownership ratio.
• Irrevocables represent a 40.31% ownership ratio. The minimum acceptance condition requires a 44% minority acceptance rate. The offer is attractive vs. historical and peer multiples.

• Q1-2 FY3/2024 results were in line with revised company guidance, highlighting progress in growing prioritized businesses in the Strategic Areas segment such as Healthcare.
• However, the company is experiencing headwinds due to weakness in demand from the electronics sector and market divergence for EV battery cathode materials.
• Volumes have also fallen more than anticipated YoY in the legacy Automotive Catalyst Areas. 

• Carenet Inc (2150 JP) is a “medical contents” provider. It acts as a distributor of information to doctors and medical practitioners over the internet, and also consults with pharmaceutical companies.
• On Wednesday, they announced that they were going to move from TSE Growth to TSE Prime as of 29 November.
• At ¥31bn market capand this may turn people off, but it may be a treat for some. There is a reason why there are some big holders.

• Aeon and Seven & I both have large financial services arms, generating a substantial share of consolidated profits.
• With cashless payments now the norm, the old business models that relied on fees for cash dispensing are fast becoming outdated.
• Both retailers plan major changes to create ecosystems that should deliver a lot more data to improve targeted marketing for e-commerce and retail stores.

• The ¥100 Shop chains are facing higher COGS on one side and rising wages on the other, a problem when you run a fixed price chain at just ¥100. 
• Most (except Seria Co Ltd (2782 JP)) have reacted by introducing new, higher priced lines led by Daiso.
• Watts, the smallest chain, is now catching up and higher priced lines will make up a third of stock by 2027.

• The same problem underlies the fact that women are more likely to be part-time/ non-regular workers, as well as the lower percentage of management positions and shorter length of service.
• Setting targets and implementing measures for % of female managerial positions is important, since the higher ratio will narrow the gender wage gap, but this alone is not sufficient.
• It’s necessary to ensure that women have the same position in workplace even if they leave the workforce, and to change social systems and people’s mindset to support child care.

• Many months ago I suggested the JIC Tender Offer JSR Corp (4185 JP) was not overwhelmingly high-priced, but that it would be “heavy” for months to come. 
• FUD and Flows would widen the spread. And they did.
• Now the time decay to expected approvals and tender offer start are getting steep. Time to Fight The FUD.

• JSR Corp (4185 JP)’s pre-conditional tender offer from JIC is conditional on several regulatory approvals, notably China SAMR approval. JIC can waive the conditions precedent.
• A takeaway from the Broadcom (AVGO US)/VMware Inc Class A (VMW US) SAMR clearance is that if JIC is willing to commit to restrictive conditions, SAMR approval can be obtained.
• On 6 November, JSR reiterated a late December tender start. However, with time fast running out, the likely scenario is SAMR conditional approval with a delayed tender start.

• We once called Uniqlo the Toyota of clothing. And this remains apposite. Its consistent, reliable quality, focus on supply chain efficiency, and increasingly global renown make it a solid bet.
• The majority of the growth last year came from overseas markets, including even the US and Europe and the appointment of Daisuke Tsukagoshi as president will boost overseas performance further.
• Fast Retailing is talking up the potential of GU, which should make up for lower domestic growth from Uniqlo but also now thinks it can make it a global brand.

• Asahi Intecc (7747 JP) is poised for multi-year growth through strong market demand for its technically superior guidewires, market leadership positioning, new product launches, and direct marketing initiatives.
• In FY24, Asahi Intecc aims to achieve revenue of ¥100B (+11% YoY), a significant milestone. The company targets revenue of ¥110B and an operating profit margin of 23–25% in FY26.
• Asahi Intecc is expected to be a continued beneficiary of global procedure volume recovery. The company is likely to achieve its medium-term business plan ahead of schedule.

• Panasonic Holdings Corporation (PHD) is entering a strategic partnership with Apollo Global Management, involving the partial sale of its ownership in Panasonic Automotive Systems Corporation (PAS).
• PAS, historically known for car stereos and navigation systems, has expanded into automotive electronics, holding approximately 15% of the global Automotive Digital Cockpit market with $3.6 billion in sales.
• Despite a bearish view on Panasonic, this deal is seen as a positive step toward streamlining the group structure and concentrating on core, sustainable growth areas.

• Since the list of companies disclosing information based on TSE’s request only shows “whether they disclosed,” more companies will disclose the information in their corporate governance reports by December anyway.
• Good practices published by TSE will provide hints for companies to improve their future disclosures. Investors will also be more likely to demand improvements from companies based on good practices.
• The next step after disclosing the cost of capital is whether companies can disclose measures to fill gap between cost of capital and actual return and to raise return further.

• Kantsu is a logistics company that supports the high-growth e-commerce industry, specializing in warehouse logistics and handling the entire upstream logistics process, from order processing to delivery.
• The company is also creating a highly profitable business by selling its in-house developed IT system that boosts efficiency to external customers.
• In 1H FY24/2, Kantsu reported net sales of ¥5,619 mn (+10.0% YoY), operating profit of ¥164 mn (-14.1% YoY), ordinary profit of ¥162 mn (-7.4% YoY), and profit attributable to owners of the parent of ¥115 mn (+2.3% YoY).

• Upside risk to company guidance – Q1-3 FY12/2023 results were ahead of guidance and a positive surprise in our view.
• Operating profit grew 25.8% YoY, driven by a major improvement in profitability in the Advertising segment, continued robust demand for ESG services, and management’s prudent cost control (with SG&A margins stable YoY).
• The mainstay Premium Benefits Club service saw 2 net additional customers QoQ for Q3 FY12/2023, rising to 89 customers – the service is experiencing a positive trend of demand from an increasing number of retail shareholders, and a hike in spending by companies on shareholder benefits program. 

• Back on 30 October, Daito Trust Construct (1878 JP) announced a large earnings, a new Shareholder Return policy, a higher payout this year, and a big buyback. 
• It said the buyback period would start two days later, but they did not specify the method (Daito Trust Construction (1878) – Big Buyback, Dense Register, 120% Payout This Year 
• Today they announced a ToSTNeT-3 purchase for “the whole size”, which is accompanied by a “Japan-style ASR.” Know your details.

• Today after the close, noted Japanese battery maker Gs Yuasa Corp (6674 JP) announced a public equity offering accompanied by a 3rd party placement to Honda Motor (7267 JP). 
• Total $300mm+ raise is nearly 20.0mm shares against ~80mm shares out now. That’s 20% EPS dilution at a still-decent discount to book value.
• This creates a weird situation of a low ROE stock becoming lower ROE, at a lower PBR, with “more growth ahead” in a hyper-competitive space.

• Gs Yuasa Corp (6674 JP) (GSY) is looking to raise around US$240m via a public offering, along with placing shares via third-party allotment with Honda Motor (7267 JP) .
• The company formed a JV with Honda Motors earlier this year and will use the bulk of the proceeds for investments in the JV.
• In this note, we will talk about the deal dynamics and run the deal through our ECM framework.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Lippo Karawaci
• Softbank Group
• Xiaomi Corp

• AZ-Com Maruwa Holdings (9090 JP) is looking to raise around US$206m in its mixed follow-on offering. 
• The deal will be a large one to digest, at 129 days of three month ADV, 5.5% dilution and 12.2% of current mcap.
• In this note, we will talk about the deal dynamics and run the deal through our ECM framework.

• Major change of gameplan – Q1-3 FY12/2023 results were weaker than expected with the company revising down FY guidance, and withdrawing both current medium and long-term plans given highly challenging business conditions.
• An overview plan of structural reforms has been unveiled, focusing on becoming a more resilient and profitable business, realigning product lines, and rebuilding sales and production setups.
• Although an ambitious initiative with a wide scope, we believe that this will have a positive impact of significantly accelerating transformation initiatives, and transitioning the company to a more optimal business model.

• TSE suggests presenting management strategies without sticking to the medium-term management plan, but the “medium-term management plan briefing” is the only opportunity to hear management policies from the company.
• The primary reason why companies whose stock prices outperform even though they don’t publish medium-term management plan are founding-family companies is that their interests align with those of their shareholders.
• To align management with shareholders, it was also necessary to require CEOs with low stock ownership to increase the ratio of variable compensation and adopt stock grants in director compensation.