Japan

In today’s briefing:

Furuya Metal (7826 JP) TOPIX Inclusion: Big Impact but Even Bigger Overhang
Last Week in Event SPACE: Zhejiang, Pasona, ENN Energy, Asahi Group, Azure Minerals
(Mostly) Asia-Pac Weekly Risk Arb Wrap: Benefit One, Japan Best Rescue System, IJTT, Ohizumi, VNET
Weekly Deals Digest (19 Nov) – Benefit One, JBR, Eoflow, Haitong, Vinda, Asahi, Tata Tech, Zeekr

Furuya Metal (7826 JP) TOPIX Inclusion: Big Impact but Even Bigger Overhang

By Janaghan Jeyakumar, CFA

On 16th November 2023, Tokyo-based Industrial-use precious metal products manufacturer Furuya Metal (7826 JP) announced they would be moving from TSE Standard to TSE Prime on 6th December 2023.
This move would trigger a TOPIX Index Inclusion event at the end of January 2024 which would require all the TOPIX-tracking passive funds to buy shares in the company.
The company also launched an offering in conjunction with the TSE Prime announcement. In this insight, we take a look at the flow dynamics of the upcoming TOPIX Inclusion event.

Last Week in Event SPACE: Zhejiang, Pasona, ENN Energy, Asahi Group, Azure Minerals

Pasona Group (2168 JP) is massively net cash. And it’s ofloading Benefit One Inc (2412 JP). Though we don’t know what the future holds, Pasona is the wrong price.
ENN Energy (2688 HK) controlling shreholder announced it intends to increase it stake. And it’s been in the market almost everry day since the interims.
Zhejiang Expressway (576 HK) announced its rights offering. It’s at a long-term low price, and about to earn a long-term high net income, and have a long-term high payout ratio

(Mostly) Asia-Pac Weekly Risk Arb Wrap: Benefit One, Japan Best Rescue System, IJTT, Ohizumi, VNET

I tally 41 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
Six new deals were discussed this week: Benefit One (2412 JP), Japan Best Rescue System (2453 JP), IJTT (7315 JP), Ohizumi (6618 JP), Amara (AMA SP), and Atlantic Lithium (A11 AU).
Key updates took place for: VNET (VNET US), Eoflow (294090 KS), Azure Minerals (AZS AU), Origin Energy (ORG AU), Haitong International Securities Group (665 HK) and Shidax Corp (4837 JP).

Weekly Deals Digest (19 Nov) – Benefit One, JBR, Eoflow, Haitong, Vinda, Asahi, Tata Tech, Zeekr

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 Benefit One Inc (2412 JP), Japan Best Rescue System Co (2453 JP), Eoflow (294090 KS), Haitong International Securities Group (665 HK), Vinda International (3331 HK), Amara Holdings (AMA SP).

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Nov 18

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

In today’s briefing:

Rakuten Bank (5838 JP) Remains a Positive Pick in the Japanese Neobanks
Another Catalyst for Expected Reduction in Policy Shareholdings

Rakuten Bank (5838 JP) Remains a Positive Pick in the Japanese Neobanks

By Victor Galliano

Rakuten Bank shares have experienced something of a re-rating, but we believe it has further to go, with attractive fundamentals and relatively undemanding valuations compared to its digital peers
Rakuten Bank is well positioned to benefit from the tailwind of the steepening yield curve in Japan, with its low LDR, growing loan book and healthy capital ratio
It is leveraging off the Rakuten Group eco-system; not only is it growing its client base, but also nearly a third of clients use Rakuten Bank as their primary bank

Another Catalyst for Expected Reduction in Policy Shareholdings

Since Corporate Governance Code limits disclosures on climate change to prime market companies, it’ll encourage the transition from Prime to Standard market and discourage the transition from Sandard to Prime.
While it’ll be interesting to see how many years “Scope 3” disclosures will be mandatory, more attention will be paid to how companies uses the cash from reducing policy shareholdings.
Although the situation is different than it was in 2000 because few companies are underfunded, attention should be paid to whether retirement benefit trusts will become a refuge for policy-shareholdings.

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Nov 17

Daily Brief Japan: Pasona Group, Asahi Group Holdings, Nippon Paint Holdings, Sparx Group, Takara Bio Inc, Geniee Inc, Ohba Co Ltd and more

In today’s briefing:

Pasona: The Wrong Price
Asahi Group Holdings (2502) Offering – Some Index Demand But Needs Lots of Active Long-Onlies
Asahi Group Placement – Relatively Small One when Compared to Previous Large JP Secondary Selldowns
Asahi Group (2502 JP): Big Placement with Limited Index Buying; Timing Is Key
Asahi Group (2502 JP): US$1.3bn Secondary Placement
Nippon Paint (4612 JP): Results Beat On Resilient China 2C Business
SPARX – Sharply Expanding ROE, 1H24 Profit Annualized Surges YoY, FUM Strongly Up, Costs Contained
Takara Bio (4974 JP): Smaller-Than-Expected Decline in H1FY24 Profit; FY24 Guidance Revised Downward
Geniee (6562 JP) – Resilient Ad Growth and Marketing SaaS Driving Momentum
Ohba |(9765 Jp) – Making Steady Progress in Building up Technical Capabilities and Human Capital

Pasona: The Wrong Price

As discussed here in a piece about the Partial Tender Offer, Pasona Group (2168) has agreed to sell its controlling stake in Benefit One (2412) to M3 (2413).
That will leave Pasona Group with a fair chunk of cash and possibly a residual stake in Benefit One, depending on the results.
Though we don’t know what the future holds, Pasona now is the wrong price for its future.

Asahi Group Holdings (2502) Offering – Some Index Demand But Needs Lots of Active Long-Onlies

Asahi Group Holdings (2502 JP) today announced a collection of 10 shareholders (mostly financial institutions) would sell a total of 33.48mm shares (6.6% of shares out) in Asahi Group.
This will become more of a thing going forward. Cross-holders “want” to unwind. And in many cases, the cross-held want to buy back stock (reduce E, raise ROE).
This deal is “good” in that it clears out a lot of the bank cross-holders in one fell swoop. But there are more crossholders behind.

Asahi Group Placement – Relatively Small One when Compared to Previous Large JP Secondary Selldowns

By Clarence Chu

A group of shareholders are looking to raise US$1.3bn (JPY197.8bn) by selling their respective stakes in Asahi Group Holdings (2502 JP) via an extended secondary follow-on.
The deal would represent 23 days of Asahi’s three month ADV. Its latest extended large primary deal has done very well.
While the deal isn’t particularly well flagged, it is an extended one allowing the market to price in the impact of the share sale.

Asahi Group (2502 JP): Big Placement with Limited Index Buying; Timing Is Key

By Brian Freitas

Nine shareholders are looking to sell 33.48m shares of Asahi Group Holdings (2502 JP). That is US$1.28bn, 24x ADV and 6.6% of shares outstanding.
Given the recent run up in the stock, there could be downside over the next couple of weeks ahead of the pricing date.
There will be buying from global trackers but nothing from TOPIX trackers, so not a lot of stock will be mopped up. Passive buying before settlement could create a squeeze.

Asahi Group (2502 JP): US$1.3bn Secondary Placement

Asahi Group Holdings (2502 JP) announced a pure secondary offering of 33.5 million or 6.61% of outstanding shares. At the last close, the placement was worth JPY194 billion (US$1.3 billion).
Notwithstanding Asahi’s explanation, the selling shareholders’ motivation for exiting their shareholding is likely to capitalise on the strong share price performance – Asahi shares are up 45% YTD.
Looking at recent large Japanese placements is instructive to understand the potential offer price. The pricing date will fall between 28 November and 1 December (likely 28 November).

Nippon Paint (4612 JP): Results Beat On Resilient China 2C Business

By Steve Zhou, CFA

Nippon Paint Holdings (4612 JP) announced a better-than-expected 3Q23 results this week, mainly driven by a resilient China decorative paint business.
The company also raised 2023 operating profit guidance, expecting around 6% higher operating profit (Y168bn from Y158bn previously).
At 21x forward PE, the company is attractively valued given the growth profile and strong market share position in most end-markets.

SPARX – Sharply Expanding ROE, 1H24 Profit Annualized Surges YoY, FUM Strongly Up, Costs Contained

By Daniel Tabbush

ROE is now 24.4% in 1H24 compared with 18.0% last year. ROE consistently rising well, from 15.9% in FY21.
Quarterly net profit up 47% YoY in 2Q24. On an annualized basis, net profit in FY24 can show considerable delta from FY23, a year when returns and profit were good.
Costs are well-contained. SG&A to assets was 23.7% at its recent peak and now it’s 20.8%. SG&A to revenue is now 55.5% compared with 65.3% at its recent peak.

Takara Bio (4974 JP): Smaller-Than-Expected Decline in H1FY24 Profit; FY24 Guidance Revised Downward

By Tina Banerjee

In H1FY24, Takara Bio Inc (4974 JP) reported 41% YoY decline in revenue to ¥19.1B, dragged by 46% YoY decrease in revenue from reagents, which contributed 78% of total revenue.
Operating profit plunged 87% YoY to ¥1.4B, 28% ahead of guidance, due to lower-than-expected R&D expenses. Net profit decreased 87% YoY to ¥1.1B, 67% higher than the guidance.
Takara Bio has cut FY24 sales, operating profit, and net profit guidance by 15%, 63%, and 64%, respectively, as the company is anticipating a sluggish life science R&D market globally.

Geniee (6562 JP) – Resilient Ad Growth and Marketing SaaS Driving Momentum

By Astris Advisory Japan

Q1-2 FY3/2024 results demonstrated robust growth by Geniee with sales growth of 23.7% YoY and operating profit growth of 99.9% YoY.
The Marketing SaaS segment has seen robust sales growth and margin improvement YoY, paving the way for a resilient earnings stream going forward.
However, given a weaker-than-expected outlook for the advertising market both domestically and overseas, the company has lowered FY3/2024 guidance whilst maintaining its medium-term guidance range for FY3/2026.

Ohba |(9765 Jp) – Making Steady Progress in Building up Technical Capabilities and Human Capital

By Sessa Investment Research

Earnings Trends: 1Q FY24/5 results were solid, with steady sales and improved gross profit margins.
Profit growth was limited owing to higher SG&A expenses in absolute terms stemming from hiring personnel, higher wages, and the inclusion of SG&A expenses of Ohba Research and Land Surveys.
However, the company is likely to see more benefits from the steady accumulation of orders and continuous improvement in gross profit margin from 2Q onward, when it becomes easier to secure sales volume owing to the seasonality of its business.

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Nov 16

Daily Brief Japan: Pasona Group, DCM Holdings, SUMCO Corp, Freee KK, Terumo Corp, Onward Holdings, TSE Tokyo Price Index TOPIX and more

In today’s briefing:

StubWorld: Pasona’s Expanding Cash Pile
Aeon/DCM/Keiyo Deal Changes on DCM TOB for Keiyo – Watch for Market Impact
Silicon Wafers. SUMCO Sounds The Alarm As Inventory Continues To Climb
Freee 1Q: Earnings Beat; Qualified Invoice System to Further Drive Earnings
Terumo Corp (4543 JP): Record High Revenue and OP in H1FY24; Better Profitability Expected in H2FY24
Onward on the March: More Profit from Japanese Apparel Firms
Why Should Policy Shares Be Viewed as Including Deemed Shares Held?

StubWorld: Pasona’s Expanding Cash Pile

A double dose of StubWorld this week as Pasona Group (2168 JP) finally takes the hint to sell (if not exit altogether) its holding in Benefit One Inc (2412 JP).
Preceding my comments on Pasona/Benefit One 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%.

Aeon/DCM/Keiyo Deal Changes on DCM TOB for Keiyo – Watch for Market Impact

By Shifara Samsudeen, ACMA, CGMA

DCM Holdings (3050 JP) and Keiyo Co Ltd (8168 JP) and Aeon Co Ltd (8267 JP) signed capital and business tie-up agreements 30+yrs ago. Recently, DCM bought Keiyo.
Aeon got some money from this and has decided to put that money back into DCM shares.
That changes both the current dynamics and future shareholder structure. And that leads to interesting questions about the outcome.

Silicon Wafers. SUMCO Sounds The Alarm As Inventory Continues To Climb

By William Keating

Global silicon wafer area shipments declined 10% QoQ in Q323 but customer inventory remains at historical highs and is showing no signs of declining
SUMCO’s Operating Profit forecasted to fall by ¥8.6 billion QoQ in Q423
The company vowed to make “substantial” production cuts in a bid to bring their inventory situation under control.

Freee 1Q: Earnings Beat; Qualified Invoice System to Further Drive Earnings

Freee KK (4478 JP) ’s 1QFY06/2024 results beat consensus estimates. Introduction of qualified invoicing system in October has resulted in strong corporate user growth for the company.
Upfront investment in selling and marketing has helped freee onboard a large no. of corporate clients prior to the introduction of the new invoice system.
Freee expects selling and advertising spending to decline going forward which should help the company reach break-even in FY06/2025E.

Terumo Corp (4543 JP): Record High Revenue and OP in H1FY24; Better Profitability Expected in H2FY24

By Tina Banerjee

In H1FY24, Terumo Corp (4543 JP)‘s revenue increased 10% YoY to ¥443.9B, mainly driven by a 13% YoY growth in C&V business, due to strong global demand of catheter products.
Revenue from TIS (catheter) segment reported 12% YoY growth to¥176.5B, driven by a 12% YoY growth in overseas business, with EU and China being the main drivers.
Terumo has reiterated FY24 guidance, which implies significant improvement in operating profit in H2FY24 due to the realization of the full effect of global price revision and cost cutting initiatives.

Onward on the March: More Profit from Japanese Apparel Firms

By Michael Causton

Some of Japan’s big apparel firms are making a comeback, and only some of the recent growth is coming from department stores.
Most of the revival is thanks to direct sales through e-commerce and stores, and the increasingly seamless links between them.
Onward Holdings is one of the leaders in this renaissance and is delivering the same profits as it used to with 30% higher sales.

Why Should Policy Shares Be Viewed as Including Deemed Shares Held?

Tobin’s Q is not high for companies whose policy holdings are low relative to their net assets or total assets. When discussing policy shareholdings, deemed shareholdings should be included.
Companies with a low ratio of total policy holdings plus deemed holdings to total assets have notably higher ROE, ROA, and Tobin’s Q. Vice versa.
These companies generate returns exceeding their cost of capital and are managed with asset and capital efficiency in mind, which shows in their approach to policy shareholdings as governance practices.

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Nov 15

Daily Brief Japan: Benefit One Inc, Mitsubishi UFJ Financial (MUFG), Ajinomoto Co, Takashimaya and more

In today’s briefing:

Big M3 (2413) Partial TOB As Pasona Sells Control of Benefit One (2412): Really Interesting Dynamics
I Like Big Bank Buybacks And I Cannot Lie
Benefit One (2412 JP): M3’s Partial Tender Offer
Ajinomoto Placement – Share Buyback Should Aid Group Selling
Takashimaya: At Last a Revival in Department Store Profits

Big M3 (2413) Partial TOB As Pasona Sells Control of Benefit One (2412): Really Interesting Dynamics

Today after the close with Benefit One Inc (2412 JP) reporting earnings, M3 Inc (2413 JP) announced a Partial Tender Offer to buy 81.21-83.31mm shares of Benefit One at ¥1600/share.
That cleans out Pasona, which owns 81.21mm shares. Or does it… Shareholder structure dynamics and the problems they cause later bear some detailed examination.
This one is going to be a fun special sit.

I Like Big Bank Buybacks And I Cannot Lie

Today, Sumitomo Mitsui Financial Group (8316 JP) and Mitsubishi UFJ Financial (MUFG) (8306 JP) reported H1 earnings. Mizuho Financial Group (8411 JP) reported yesterday.
Mizuho raised full-year NP guidance by ~5%, passing the Street. SMFG raised its FY NP guidance 12.2%, also beating the Street. MUFG didn’t raise guidance but H1 saw 71% progress.
Today, SMFG raised its div, and both SMFG (¥150bn) and MUFG (¥400bn) announced buybacks. Cross-holding unwind progress is waaay lower than we’d like, but capital stronger as a result.

Benefit One (2412 JP): M3’s Partial Tender Offer

Benefit One Inc (2412 JP) announced a partial tender offer from M3 Inc (2413 JP) at JPY1,600 per share, a 40.0% premium to the undisturbed price.
The transaction facilitates Pasona Group (2168 JP)‘s exit. The offer is for a minimum of 81.2 million shares (51.16% ownership ratio) and a maximum of 87.3 million shares (55.00%).
Irrevocables from Pasona represent a 51.16% ownership ratio, satisfying the minimum acceptance condition. The offer is light vs. historical multiples and share prices.

Ajinomoto Placement – Share Buyback Should Aid Group Selling

By Clarence Chu

A group of shareholders are looking to raise US$444m by trimming their respective stakes in Ajinomoto Co (2802 JP) via an extended secondary follow-on.
While the selldown doesn’t seem particularly well flagged, it won’t be a very large one to digest at just eight days of three month ADV.
In a bid to cushion the selldown, Ajinomoto plans to buyback its stock to the tune of 10m shares, which would amount to 80% of the base shares on offer.

Takashimaya: At Last a Revival in Department Store Profits

By Michael Causton

Takashimaya saw a strong increase in sales in 1H2023, helping profit rise to record levels with much of the growth coming from clothing and expects similar for the full year.
Unlike many rivals, the department store is not at all sanguine about the prospects for continued growth in luxury sales and the inbound tourist market – calling it a bubble.
It is instead emphasising profit growth over higher sales by targeting locals through store upgrades and better cost performance clothing – while also closing stores that are no longer viable.

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Nov 14

Daily Brief Japan: Japan Best Rescue System Co, Ajinomoto Co, Shidax Corp, Takara Holdings, Appier Group, Sanyo Trading, Japan Elevator Service Holding, TSE Tokyo Price Index TOPIX and more

In today’s briefing:

Japan Best Rescue (2453) MBO at ¥1,000; High Premium, Low Multiple, No Money For Synergies or Growth
Ajinomoto (2802) Secondary Offering (Cross-Holder Unwind) Matched Against Large Buyback
Shidax (4837) – Mgmt Lowers F’casts So Family Can MBO Minorities Cheap. Offensive Governance.
StubWorld: Takara Trading “Rich” As Bio Cuts Forecast Earnings
Appier (4180) | Key Drivers Behind Strong Q3 Performance
Japan Best Rescue System (2453 JP): MBK Partners Backed MBO Tender Offer at JPY1,000
Sanyo Trading (3176 JP) – Transitioning onto the Next Stage
Japan Elevator Service Holdings (6544 JP) – Game-Changer Continuing to Excel
The ％ of Female Board Members Exceeding 30% Shows Whether the Company Is Truly Pursuing Diversity

Japan Best Rescue (2453) MBO at ¥1,000; High Premium, Low Multiple, No Money For Synergies or Growth

This MBO by MBK is a strong premium because of a low recent price, but it pays a low P/FCF multiple for growth, and no synergies counted.
Yet another MBO where insiders and friends take advantage of structural inferiority of minority shareholders. Something Should Be Done.
What do Minority Shareholders in Japan Say When They Meet Death? “OK, Today it is then.” (with apologies to Game Of Thrones).

Ajinomoto (2802) Secondary Offering (Cross-Holder Unwind) Matched Against Large Buyback

Today after the close, Ajinomoto Co (2802 JP) announced a large secondary offering of 14.3mm shares (2.75% of shs out). At last price that is ¥82bn.
At the same time, they announced a 10mm share (1.92%) ¥40bn buyback to be conducted from the delivery date of the Offering through 31 March 2024.
Over time, there would be some index upweight as float increases. On a net basis, this is a small deal on a low vol stock with a semiconductor story lurking.

Shidax (4837) – Mgmt Lowers F’casts So Family Can MBO Minorities Cheap. Offensive Governance.

Shidax had a Good Governance Moment last year. The stock is up 40-odd% since last year’s GGM, but now the Board, so good last year, has tripped up.
The family and main shareholder – part of last year’s GGM – have decided to bully the Board into accepting an MBO at the wrong price.
Management lowers forecasts without telling anyone. Bidders say “Synergies LaLaLa!” Board says “Ohh la la!” Nobody counts the synergies. Bidder buys at low multiple of newly lowered forecasts. Minorities Lose.

StubWorld: Takara Trading “Rich” As Bio Cuts Forecast Earnings

On an implied stub and simple ratio, Takara Holdings (2531 JP) is at a decade-plus high to 60.9%-held Takara Bio Inc (4974 JP).
Preceding my comments on Takara 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%.

Appier (4180) | Key Drivers Behind Strong Q3 Performance

By Mark Chadwick

Appier’s Q3 demonstrated a 39% YoY revenue increase, reaching a record JPY7.1B. This was driven by substantial growth in the US/EMEA markets (117% YoY), customer expansion, and Digital Content growth.
Appier’s gross margin expanded from 51.3% to 52.6% and the operating margin reached a historical high of 4.4%. Despite ongoing investments, EBITDA margins hit12.1%, showcasing strong operating leverage.
Appier’s revised full-year outlook, with increased revenue target (JPY 26.2B), operating income (JPY0.70B), and EBITDA (JPY2.6B), exceeds consensus expectations by 1%, 11%, and 8%, respectively.

Japan Best Rescue System (2453 JP): MBK Partners Backed MBO Tender Offer at JPY1,000

Japan Best Rescue System Co (2453 JP)/JBR has recommended an MBK Partners-backed MBO tender offer of JPY1,000 per share, a 53.8% premium to the undisturbed price (13 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 to accept the offer represent a 53.62% ownership ratio. The minimum acceptance condition requires a 28.1% minority acceptance rate, which is helped by the significant premium.

Sanyo Trading (3176 JP) – Transitioning onto the Next Stage

By Astris Advisory Japan

Impressive progress to date – Q1-4 FY9/2023 results were at record highs for the company, demonstrating a sustained track record of above-average profitability and disciplined capital allocation via M&A.
Business diversification to life sciences has led to sales mix improvement and a more resilient business in our view.
Company guidance for FY9/2024 indicates a decrease in earnings YoY, attributed to the accumulation of strategic upfront investments for business development.

Japan Elevator Service Holdings (6544 JP) – Game-Changer Continuing to Excel

By Astris Advisory Japan

Success of disruptive innovation – we believe Q1-2 FY3/2024 results were ahead of the run-rate for FY guidance, driven by 1) sustained growth in maintenance and repair service contracts, and
2) stronger than expected demand for modernization services, resulting in gross margin improvement QoQ in Q2 FY3/2024 via amplified proposal effectiveness and increases in pricing.
We expect to see JES continue to successfully disrupt the market via innovation, driven by secular growth as building owners convert to reputable independent providers for cost management and structural demand from aging elevators requiring modernization.

The ％ of Female Board Members Exceeding 30% Shows Whether the Company Is Truly Pursuing Diversity

30% female board member set by TSE isn’t surprising, as it’s level within reach, but the fact that TSE set explicit target that companies can’t excuses is a first step.
To ensure that a female board member isn’t isolated from other board members, multiple female board members should be elected. In this sense, 30% female board members goal makes sense.
In fact, the most interesting question is how many more companies will approach 50% after achieving a 30% of female board members.

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Nov 13

Daily Brief Japan: GMO Payment Gateway, IJTT Co., Ltd., ASICS Corp, Ohizumi Mfg, Benesse Holdings, Japan Post Insurance, SCREEN Holdings and more

In today’s briefing:

Japan – Increase in Shorts on Some Interesting*** Stocks
IJTT (7315 JP): SPARX Group’s Tender Offer at JPY812
Asics (7936) | Running the Numbers
IJTT (7315 JP) – A Truly Offensive Takeover Price and Process To Buy Out Minorities at 0.46x Book
Oizumi Mfg (6618) Gets Takeout from Parent Ferrotec (6890) – Probably Cheap, Disappointing Process
Merger Arb Mondays (13 Nov) – Benesse, JSR, IJTT, Shidax, Cybernet, CMIC, IRC, Hollysys, Healius
Japan Post Insurance: Embedded Value Unlikely to Benefit from a Rate Increase
Screen Holdings (7735 JP): FY Guidance Up, 2H Guidance Down

Japan – Increase in Shorts on Some Interesting*** Stocks

By Brian Freitas

Persol Holdings, Hakuhodo Dy Holdings, Welcia Holdings, GMO Payment Gateway, CyberAgent Inc, Kobayashi Pharmaceutical, NGK Insulators, Lixil Group, Kurita Water Industries and Keio Corp have underperformed the Nikkei 225 recently.
The underperformance could lead to selling from global passive trackers and liquidity events on some of the stocks at month-end.
There has been an increase in short interest on most stocks over the last week as positioning for the liquidity event ramps up.

IJTT (7315 JP): SPARX Group’s Tender Offer at JPY812

IJTT Co., Ltd. (7315 JP) has recommended Sparx Group (8739 JP)’s offer of JPY812 per share, an 18.5% and 16.0% premium to the undisturbed (9 November) and last close price, respectively.
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 23.48% ownership ratio.
Despite the modest premium, the offer represents a high five-year share price. The minimum acceptance condition requires a 41.3% minority acceptance rate.

Asics (7936) | Running the Numbers

By Mark Chadwick

ASICS reports solid Q3 results, featuring a 14.5% rise in net sales, 31% rise in operating profit, improved gross margin, and digital growth.
ASICS revises FY23 outlook with increased sales and operating profit. New OP guidance of Y52b is inline with consensus
Market to focus on new Mid-Term Plan (end-Nov). Valuation at 16x forecast EBIT still a discount to average 18x multiple.

IJTT (7315 JP) – A Truly Offensive Takeover Price and Process To Buy Out Minorities at 0.46x Book

A Fund named Mirai Creation Fund, investing in five “fields” “vital to the future” (“intelligent technologies”, robotics, hydrogen-economy, electrification, and “new materials”) will buy out casting/forging mainstay IJTT.
The look and feel of this fund screams “lead me to the future”, so of course, the buy-out is being done with 26% equity, 74% debt. Levered is good.
That’s to buy at 0.46x PBR. Equity check is 12% of net assets. The Board says “yes” because it will lead to “improvement of corporate value”. Unfortunately, not for shareholders.

Oizumi Mfg (6618) Gets Takeout from Parent Ferrotec (6890) – Probably Cheap, Disappointing Process

Ferrotec Corp (6890 JP) on Friday announced a takeover for subsidiary Ohizumi Mfg (6618 JP) on Friday. There will be synergies and growth and corporate value increase.
The takeover price is not overly high, and includes no measure of synergies – not even the DCF value of delisting the company (no listing/filing/IR/legal fees/costs).
I think this gets done. It is too closely held, there are few foreigners in it, and it’s not large enough for an activist to care.

Merger Arb Mondays (13 Nov) – Benesse, JSR, IJTT, Shidax, Cybernet, CMIC, IRC, Hollysys, Healius

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 – 111 Inc (YI US), Eoflow (294090 KS), Benesse Holdings (9783 JP), Hollysys Automation Technologies (HOLI US), Irc Ltd (1029 HK), IJTT Co., Ltd. (7315 JP).
Lowest spreads – Azure Minerals (AZS AU), Pact Group Holdings (PGH AU), T&K Toka Co Ltd (4636 JP), Tietto Minerals Ltd (TIE AU), Chindata Group (CD US).

Japan Post Insurance: Embedded Value Unlikely to Benefit from a Rate Increase

By Alec Tseung

Japan Post Insurance might seem undervalued based on a regression analysis, but its relatively strong RoE was due to extraordinary gains.
The company has a much larger portion of its investment securities being carried at cost on the balance sheet vs. its peer, Dai-ichi Life.
Against the backdrop of Japan’s “higher for longer” theme, its embedded value growth could be under more pressure due to ANW’s m-t-m adjustments and very weak new business value.

Screen Holdings (7735 JP): FY Guidance Up, 2H Guidance Down

By Scott Foster

The share price has risen by more than 20% in the past month as 1H results beat guidance, FY guidance was raised and the yen weakened.
The 2-for-1 stock split may also have attracted retail investors. But the new FY guidance implies lower 2H guidance.
The outlook is for higher but volatile sales and profits. Valuations are reasonable but not compelling. Wait for a pullback.

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Nov 12

Daily Brief Japan: Cybernet Systems Co, Benesse Holdings, Vinx Corp, Descente Ltd, Shidax Corp, Ps Mitsubishi Construction, Renesas Electronics, TSE Tokyo Price Index TOPIX and more

In today’s briefing:

Fujisoft Tender Offer for Listed Sub Cybernet (4312) – This Is Too Cheap
Benesse Holdings (9783 JP): EQT Backed Pre-Conditional MBO Tender Offer at JPY2,600
Vinx Corp (3784) TOB by Parent Fujisoft (9749) – A Bit Cheap, Impossible To Block
Last Week in Event SPACE: Korea’s Short Selling, Hollysys, Sankyo, Descente
Shidax Corporation (4837 JP): MBO Tender Offer at JPY800
Taisei Corp (1801) Partial Tender for PS Mitsubishi Construction (1871)
ECM Weekly (12th Nov 2023)-Renesas, Bajaj, Alchip, Hybe, Will, Wuxi, ChaPanda, Chenqi, Cello, Honasa
Preparation in Advance for In-Depth Discussions Is Important for Both Investors and Managers
Benesse (9783) MBO – ¥2600/Share Is Up 40+% But It Is Still the Wrong Price

Fujisoft Tender Offer for Listed Sub Cybernet (4312) – This Is Too Cheap

Fuji Soft Inc (9749 JP), as target of activist-ish investor 3D Investment Partners, launched a “Special Committee to Increase Corporate Value” in August 2022. They reported in Nov22 and Feb23.
They also reported in Aug23, mentioning the four listed subs and synergies. Last week, Fujisoft announced it was buying them all out.
Cybernet Systems Co (4312 JP) is one of the two larger ones. It is being done too cheaply. Waaay too cheaply. It would not be impossible to block.

Benesse Holdings (9783 JP): EQT Backed Pre-Conditional MBO Tender Offer at JPY2,600

Benesse Holdings (9783 JP) has recommended an EQT-backed pre-conditional MBO offer of JPY2,600 per share, a 45.1% and 36.3% premium to the undisturbed price and last close, respectively.
The pre-conditions primarily relate to Japanese and Chinese approvals, which can be waived. Chinese SAMR approval should be forthcoming as education is not a geopolitical fraught sector.
The offer is long-dated and opens in early February 2024. While not a knockout bid, the offer is fair in the context of Benesse’s muted outlook.

Vinx Corp (3784) TOB by Parent Fujisoft (9749) – A Bit Cheap, Impossible To Block

Fuji Soft Inc (9749 JP), as target of activist-ish investor 3D Investment Partners, launched a “Special Committee to Increase Corporate Value” in August 2022. They reported in Nov22 and Feb23.
They also reported in Aug23, mentioning the four listed subs and synergies. Last week, Fujisoft announced it was buying them all out.
Vinx Corp (3784 JP) is one of the two larger ones. It is being done too cheaply, but it would be nigh impossible to block. A safe deal.

Last Week in Event SPACE: Korea’s Short Selling, Hollysys, Sankyo, Descente

The Korean Financial Services Commission and the Financial Supervisory Service held a press briefing, unveiling the comprehensive prohibition of short selling from the 6th November, until June 30th next year.
Recco or Ascendant for Hollysys (HOLI US)? Ascendant could easily get >50% of shares out, and spill the board. Recco, with no shares held, looks to have a weaker hand.
Sankyo (6417 JP) is cheap. It will never trade at 20x expected PER because of the nature of the business; right now, on an ex-cash basis, it trades 1.6x ex-cash PER.

Shidax Corporation (4837 JP): MBO Tender Offer at JPY800

Shidax Corp (4837 JP) has recommended an MBO tender offer of JPY800 per share, a 10.3% premium to the undisturbed price (9 November).
After the settlement of the tender offer, Oisix ra daichi (3182 JP) will acquire a 66.0% stake in the offeror by way of third-party allotment at the tender offer price.
Despite the skinny premium, the offer is just shy of the ten-year share price high. The minimum acceptance condition requires a 12.5% minority acceptance rate.

Taisei Corp (1801) Partial Tender for PS Mitsubishi Construction (1871)

Last week, as Ps Mitsubishi Construction (1871 JP) reported earnings, Taisei Corp (1801 JP) announced a Partial Offer for PS Mitsubishi, buying out Ube Cement & Taiheiyo Cement stakes.
Partial offers have recently traded well before the close, and badly after the result. As we near year-end, this one could trade a bit softer, suggesting a lower back end.
Shareholder Structure, Pro-ration analysis, and back end calculation grids below.

ECM Weekly (12th Nov 2023)-Renesas, Bajaj, Alchip, Hybe, Will, Wuxi, ChaPanda, Chenqi, Cello, Honasa

By Sumeet Singh

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, WuXi XDC provided some rare rays of hope in Hong Kong, while Honasa Consumer, Cuscal (1229Z AU) and EcoPro Materials did the opposite.
This week was more about placement with two US$1bn+ deals, a cleanup in Renesas Electronics (6723 JP) and a QIP for Bajaj Finance Ltd (BAF IN).

Preparation in Advance for In-Depth Discussions Is Important for Both Investors and Managers

TSE plans to publish a list of companies that disclosed and those that are “under consideration” for disclosure in “Management Conscious of Cost of Capital and Stock Price.”
TSE’s plan to introduce actual investor feedback on how investors view dialogue and engagement and what kind of information disclosure and IR they expect from companies is commendable.
It is very important to know what investors actually want to know, what management is doing to achieve this, and how they should interact with investors in IR activities.

Benesse (9783) MBO – ¥2600/Share Is Up 40+% But It Is Still the Wrong Price

Just before the close Friday, the Nikkei reported Benesse Holdings (9783 JP) would be the subject of an MBO in order to restructure the flagging private shinken-zemi business. And grow.
It turns out it is EQT and the Fukutake family at ¥2600/share – a 2-year high. Wow. It is also a ridiculously cheap price given the assets and money flows.
I expect this may get some people upset as the valuation methodology is dodgy and the artful (hehehe) Balance Sheet has some easter eggs, and spotted pumpkins… or something.

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Nov 11

Daily Brief Japan: Renesas Electronics, Shidax Corp, Olympus Corp, Softbank Group and more

In today’s briefing:

Renesas Clean-Up Block Trade – Overhang Out of The Way And Time To Own Again
Shidax (4837) – Nikkei Scoops MBO (Anncmt Post-Close), Family Wants to Buy at ¥800 Which Is Too Low
Olympus (7733) – OP Hit but Additional Buyback; Positive Dynamics but Flow Risks Persist
Softbank (9984 JP): WeWork Hangover and Other Challenges

Renesas Clean-Up Block Trade – Overhang Out of The Way And Time To Own Again

INCJ made a lot of money on Renesas Electronics (6723 JP) over the years and arguably did a great job helping the firm change direction. Now they are out.
Last night they launched a block sale through JPM and Bof A for 130.2317mm shares. They priced the heavily-oversubscribed deal at a discount of 8% or ¥2143/share.
That’s a big discount (so bad broking) for such oversubscription on a clearly-flagged deal but now they are out.

Shidax (4837) – Nikkei Scoops MBO (Anncmt Post-Close), Family Wants to Buy at ¥800 Which Is Too Low

13mos ago I wrote about Shidax Corp (4837 JP) which an interesting restructuring past and a refreshing governance outlook going forward in Shidax Outlook May Change – Better Governance Matters.
The stock was up 25% in that period to yesterday. Today, a Nikkei article mid-day suggests the Shida family will launch an MBO. Stock popped. Earnings out after the close.
The article suggests a take-private MBO with Oisix ra daichi (3182 JP) again supporting the deal. 30 minutes ago Shidax responded saying an offer was put forth at ¥800/share.

Olympus (7733) – OP Hit but Additional Buyback; Positive Dynamics but Flow Risks Persist

Yesterday, Olympus Corp (7733 JP) announced Q2 earnings which were trifle light, and announced a sharp downward revision to full-year OP despite higher revs on weaker yen.
OP takes a hit because of expenses related to the shutdown of Veran Medical device sales (announced 6 Sep, “causing” a 2.4% share price fall the next day).
They also announced an ¥80bn buyback. That should be worth 3.0-3.5% of shares out, but overhang exists. The label is the label. The details are inside. They matter.

Softbank (9984 JP): WeWork Hangover and Other Challenges

By Victor Galliano

Softbank’s exposure to WeWork continues to haunt it beyond the close of 2QFY23, due to its credit support agreements
Aside from WeWork, we continue to see risks to valuations supporting the NAV; in particular, Arm Holdings and SVF2 which accounted for 45% of group equity value
Softbank shares trade at a 45% discount to the stated NAV yet there is downside risk to Arm’s valuation along with questions over private company valuations at SVF1 and SVF2

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Nov 10

Daily Brief Japan: Renesas Electronics, Trend Micro Inc, Ps Mitsubishi Construction, Cybernet Systems Co, TSE Tokyo Price Index TOPIX and more

In today’s briefing:

Renesas Electronics Placement – Well Flagged US$1.8bn Deal, Accelerated but Index Flows Should Help
Renesas Electronics (6723 JP): INCJ Clean Up; Index Buying Smaller than Expected
Trend Micro BIG Bonanza But Shareholder AND Balance Sheet Structure Matter. N225 Divs Get a Fillip
P.S. Mitsubishi Construction (1871 JP): Taisei’s Partial Tender Offer
Cybernet Systems (4312 JP): Fuji Soft’s Tender Offer at JPY1,095
Prime Market Is Still the Market with the Most Listed Companies Even After 171 Companies Are Removed

Renesas Electronics Placement – Well Flagged US$1.8bn Deal, Accelerated but Index Flows Should Help

By Ethan Aw

INCJ aims to raise around US$1.8bn via a secondary sell-down in Renesas Electronics (6723 JP). This will be a clean-up trade as INCJ has been paring down its stake.
The deal is a slightly large one to digest at 12 days of three month ADV and around 6% of current mcap.
In this note, we will talk about the placement and run the deal through our ECM framework.

Renesas Electronics (6723 JP): INCJ Clean Up; Index Buying Smaller than Expected

By Brian Freitas

INCJ is selling the last of its stake in Renesas Electronics (6723 JP). This will remove the overhang but could lead to selling in the short-term.
Renesas Electronics (6723 JP) has outperformed its peers over the last couple of years but valuations are in-line with the peer group (or slightly cheaper).
The float increase in global indices will coincide with the offering, but the TSE Tokyo Price Index TOPIX (TPX INDEX) float increase will take quite a while.-

Trend Micro BIG Bonanza But Shareholder AND Balance Sheet Structure Matter. N225 Divs Get a Fillip

Trend Micro Inc (4704 JP) has been under pressure to improve capital allocation after Value Act bought in 2022. In February 2023, Trend announced a weak sauce capital return policy.
They promised a 100% payout ratio with 70% div payout ratio. But with huge piles of cash and securities, it wasn’t going to be enough, and shareholder structure ALWAYS matters.
Here it meant Trend Micro was vulnerable to further attack. Today, Trend announced a HUGE capital return with buyback, and a special div and this will excite Nikkei 225 arbs.

P.S. Mitsubishi Construction (1871 JP): Taisei’s Partial Tender Offer

Ps Mitsubishi Construction (1871 JP)/PSMIC announced a partial tender offer for Taisei Corp (1801 JP) at JPY1,010 per share, a 22.4% premium to the undisturbed price.
The partial offer is for a minimum of 20.4 million shares (42.94% ownership ratio) and a maximum of 23.8 million shares (50.20% ownership ratio).
Irrevocables represent a 42.94% ownership ratio, satisfying the minimum acceptance condition. The offer is attractive and represents a ten-year high. The tender offer runs from 10 November to 11 December.

Cybernet Systems (4312 JP): Fuji Soft’s Tender Offer at JPY1,095

Cybernet Systems Co (4312 JP) has recommended Fuji Soft Inc (9749 JP)’s tender offer of JPY1,095 per share, a 31.8% premium to the undisturbed price (8 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 12.28% ownership ratio.
The offer price is attractive and marginally below the ten-year share price high. The minimum acceptance condition (lower limit) requires a 26.9% minority acceptance rate, which is doable.

Prime Market Is Still the Market with the Most Listed Companies Even After 171 Companies Are Removed