Japan

• Integral Corporation (5842 JP) priced its IPO at JPY2,400 per share to raise gross proceeds of US$122 million. The shares will start trading on 20 September.
• We previously discussed the IPO in Integral Corporation IPO: The Bull Case, Integral Corporation IPO: The Bear Case and Integral Corporation IPO: New Price Range Is Tempting.
• The market sentiment on the sector has steadily improved since the prospectus’ release. Our analysis suggests that the IPO price remains attractive.

• Activist investor, Strategic Capital, has taken a significant 5% stake in the underperforming steel company
• Yodogawa stacks up in line with the sector on operating metrics but its under leveraged balance sheet has crimped Returns on Equity and valuations
• We expect that the activist will seek to improve the company’s ROE through an improvement in capital allocation. That is bullish

• The Nikkei 225 INDEX is getting WEEKLY OVERBOUGHT after just +1 week up. Rallying further during the next 2-3 weeks may be hard, it could stall or fall.
• If the index rallies further this week, it could fall the following week. Alternatively it could stall this week and rally the following week/s, but OVERBOUGHT status won’t go away.
• 34256 is the Q3 resistance target on CC=+3, this should be a hard barrier to breach. An earlier barrier is Q3 resistance on the Gen.Pattern Boxplot = 33835.

• Seven & I Holdings (3382 JP)‘s share price has remained below ¥6,600 since the end of its bull run in March 2023.
• Short-Term optimism hinges on a substantial earnings beat, but the US business challenges make it unlikely.
• Seven & I faces valuation risks, trading near peak multiples with diminishing growth prospects.

• If a company with P/B less than 1 conducts share buyback, its P/B will decrease; if a company with P/B greater than 1 conducts share buyback, its P/B will increase.
• A company with P/B below 1x can be a great value stock if it can demonstrate to investors that it will generate ample cash flow, in addition to repurchasing shares.
• Even if a company’s P/B is well above 1x, it is required to explain to investors whether there are any gaps in its cash flow growth scenario.

• Seibu Giken (6223 JP) (SG) is looking to raise around US$93m in its Japan IPO via selling a mix of primary and secondary shares.
• SG sells desiccant dehumidifiers and VOC concentrators in over fifty countries globally. Its two main products accounted for over 90% of its revenue in 2022.
• In our previous note, we looked at the company’s past performance. In this note, we talk about valuations.

• Integral Corporation (5842 JP) raised around US$123m in its Japan IPO.
• Integral is a private equity management company advising funds that invest in both listed and unlisted companies in Japan, with a focus on mid-sized companies.
• In our previous notes, we looked at the company’s past performance and valuation. In this note, we talk about the trading dynamics.

• Four years after Itochu got to 40.0% of votes in Descente (8114) in a hostile Tender Offer, Descente partner ANTA, which supported Itochu at the time started selling its stake.
• A few months later, Itochu started buying shares of Descente in the market. As of 7 Sep, Itochu had bought Descente shares 81 days straight (9.7% of ADV).
• This begs the question: Is Itochu ensuring they maintain voting control as ANTA sells? Or are they buying to lift their stake prior to another bid?

• The Japan Post Holdings (6178 JP)/ Japan Post Bank (7182 JP) ratio looks more attractive as JPB climbs with other banks as the possibility of Offering-induced retail overhang increases. 
• The ACCC has until 28 September 2023 to make its decision on Origin Energy (ORG AU). Expect ACCC to be supportive – they haven’t built a strong “against” case.
• There should be more for the Kenedix REIT complex on a fundamental basis, a future equity capital raise accretion basis, and because of significant net buying for index purposes.

• 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, ARM’s IPO seems to have set the ball rolling for the traditionally busy year end across the region.
• In the placement space, finally a Hong Kong placement mangaed to hold up, even as a large Aussie one gave way.

• 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 – Doosan Robotics (454910 KS), VNG (VinaGame) (VNG US), Integral Corporation (5842 JP), Tuhu Car (2007986D HK) and 4Paradigm (1764934D HK) IPOs.
• Event-Driven developments – T&K Toka Co Ltd (4636 JP), IMAX China Holding (1970 HK), Poly Culture Group Corp H (3636 HK), Liontown Resources (LTR AU), Pact Group Holdings (PGH AU). 

• Nine months ago I first wrote on Anycolor (5032 JP). I thought the guidance growth pattern and valuations remarkable. Results handily beat guidance. Now we’re in Year 2 of guidance.
• After the first full year listed, FY2024 guidance was for +30% in revenue to ¥33bn, and +35% growth in OP. For Q1, reported yesterday, actual results were +51% and +91%.
• The stock is popping this AM, but it is still cheap vs growth rates and margins. There are, notably, still “context issues” here. They merit some consideration (and investigation).

Lucror Analytics Weekly Wraps provide an overview of all Morning Views comments and reports published by our analyst team in the past week, and also showcase a list of the most-read reports.

In this Insight:

1. Softbank Group
2. China SCE
3. Sino-Ocean Group
4. China Jinmao Holdings
5. Geely Auto

and more…

• Mitsubishi UFJ Financial Group Inc. delivered a solid result and managed an all-around beat last quarter.
• Despite increased G&A expenses, the company managed to rebound in terms of NOP, reaching a level before the introduction of negative interest rates.
• We give Mitsubishi UFJ Financial Group Inc. a ‘Hold’ rating with a revised target price.

• The GPIF employs a “passive enhanced engagement” approach, which is linked to TOPIX and engages in engagement activities with the portfolio companies. This approach should be examined for any challenges.
• The challenge is whether GPIF’s extremely low management fees can engage in deep engagement with a large number of portfolio companies to reduce tracking error from TOPIX.
• GPIF cites its inability to invest in equities in-house and the huge AUM as reasons for its bias toward passive funds. If this is an obstacle, reform should be considered.

• Visional (4194 JP)‘s 4QFY07/23 revenue missed consensus by 0.2% despite revenues increasing 22.1% YoY to 14.73bn. Operating profit beat consensus by a huge margin of 21%.
• Though revenue growth has slowed down, BizReach has maintained its steady performance while HRMOS continues to see strong growth with significant reduction in operating losses.
• The company’s share price moved up by more than 5% following its earnings announcement and Visional remains our top pick in the Japanese HR space.

• Last week I wrote about NTT’s Partial Offer for Marketing Consultant Intage (4326) – (with a spurious hyphen at the end). 
• In the last couple of days, there have apparently been a few blocks printed on the tape. I have received questions about pricing and pro-ration. 
• So here I provide a set of 11 possible pro-ration cases, and suggest ways for traders and investors to think about the risks and possibilities.

• In mid-June, three months ago yesterday, Kenedix Office Investment Co (8972 JP), Kenedix Retail REIT (3453 JP), and Kenedix Residential Investment (3278 JP) announced a three-way merger for Nov1.
• All three popped in price, and peaked three weeks later, both outright and vs Peers. Then it fell sharply back. 
• It is worth looking at the new Combined “KDX” entity on a pro-forma basis. There should be more to go.

• Toyota Group autoparts maker Aisin Seiki (7259 JP) today announced a new Medium-Term Plan. They plan to shift their business away from “entrusted” business, towards BEV, Brakes, and “Safe/Comfort Entry”
• They aim to grow revenues 25% from 2021 to 2025 and an additional 10-20% by 2030. 
• They also aim to improve investment and capital efficiency, and that’s where we can look at the interesting possibilities.

• Aisin’s stock price rose by +8% today after the company held its MTP strategy briefing
• Aisin to restructure its business portfolio and focus on new growth areas for EV’s – eAxle, battery frames, and braking technologies
• Aisin aims to generate ¥400b from balance sheet reform – asset sales, inventory management and sale of cross-shareholding.

• Ryohin Keikaku (7453 JP) experienced a 45% leap in its share price since its last earnings announcement, primarily fueled by a positive OP surprise of nearly ¥3.0bn.
• Our analysis indicates the potential for another big earnings beat in FQ4, primarily because the consensus remains conservative in its cost assumptions.
• Additionally, we anticipate that the company will provide FY24 OP guidance in the range of ¥45-50bn. This would constitute a significant upside surprise compared to the current FY24 consensus.

• NEC’ is up almost 90% year-to-date to 16X EPS guidance for this fiscal year and 12x targeted EPS three years out. It now looks fairly valued.
• Profit growth is led by IT Services for the private and public sectors, with strength in finance and system integration. 
• Social Infrastructure is growing, but in the red. Aerospace and national security are profitable, but margins are low.

• Japan has a solid if stagnant footwear market, yet it only has one compelling nationwide footwear retailer.
• ABC Mart continues to outperform its smaller rivals, with little competition as its main rivals decline further.
• The real competition is coming from brands selling directly to customers via their own stores and online – and low-cost retailers nipping at its heels from below.

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.

• China SCE
• Hopson Development
• Sino-Ocean Service
• Softbank Group

• Last year, 20% owner Dalton approached T&K Toka Co Ltd (4636 JP) for an MBO, but walked when questioned. Then in January bid ¥1300 to double their stake to 44%.
• They were not successful. The firm held a beauty contest. Bain won at ¥1400 despite ¥1300 getting no response and markets up big since. It’s possible not everyone was invited. 
• Since the Bain deal announcement, the stock has mostly traded at/through terms. Now we find out Dalton has been buying (now 23.77%). This increases the chances of a bump.

• Nidec Corp (6594 JP) has had ambitions in machine tool space. They wanted to buy Takisawa Machine Tool (6121 JP) but Takisawa wouldn’t give them the time of day.
• So Nidec announced hostile intentions and a 60-day period to negotiate. That’s done, and today they announced a now-friendly deal. 
• This looks like an easy done deal. There is one major risk factor remaining, then another consideration when thinking about path. 

• Nippon Active Value Fund/Michael 1925/Dalton has increased their T&K Toka Co Ltd (4636 JP) shareholding from 22.23% to 23.77% of outstanding shares (22.25% to 23.79% of ownership ratio including share options).
• T&K Toka shares have traded above Bain’s JPY1,400 pre-conditional offer, fuelling speculation of a bump. A rival proposal at least 5% above triggers the “Counter Tender Offer” clause.
• The four possible scenarios with declining probabilities are: Bain calls Dalton’s bluff, Bain marginally bumps, Dalton launches a rival offer or Dalton rollovers its stake into a privatised T&K Toka.

• GTVs for Yahoo’s shopping division fell by 8% in 1Q2023. 
• Although this was expected and gross profits did improve, the downturn reflects deeper concerns.
• Even the group’s Zozo fashion platform are much more slowly.

• SMFG can benefit like peer banks from BOJ policy change, but less so than MUFG, while at the same time, there does not appear to be a strong alpha story
• ROE and ROA for SMFG show now expansion over the years, and this is stark contrast to MUFG, part of this appears to be due many weak subsidiaries
• Credit costs are now averaging 23bps over the past four quarters vs 13bps during 1Q18 to 4Q19, not improving credit metrics like many others, with high write-offs.

• In 1H23, Otsuka Holdings (4578 JP) reported revenue growth of 16% YoY to ¥947.5B, ahead of the guidance of ¥867B, as all operating segments recorded increased revenue.
• In 1H23, revenue from pharmaceutical segment grew 21% YoY to ¥637.9B, mainly driven by the growth of the four global products, which contributed 49% of segment revenue.
• Encouraged by a better-than-expected 1H23 result, Otsuka has raised 2023 guidance. The company has increased revenue, operating profit, and net profit guidance by 6%, 17%, and 19%, respectively.

• Seibu Giken (6223 JP) (SG) is looking to raise around US$120m in its Japan IPO via selling a mix of primary and secondary shares.
• SG sells desiccant dehumidifiers and VOC concentrators in over fifty countries globally. Its two main products accounted for over 90% of its revenue in 2022.
• In this note, we look at the company’s past performance.

• While 4% of the number of companies mentioned in annual securities reports regarding P/B, half of companies have P/B of below 1x, which suggests managers still lack sense of urgency.
• Many companies that mention P/B in their annual securities reports rely on share repurchases, and their presentation of strategies to increase cash flow is weak.
• Clearly stating the cost of capital will lead to more appropriate ROE and ROIC targets and disclosure of specific measures to achieve them.

• The biggest Japan banks by assets, in spotlight as near ending of negative interest rates, with lowest LDR, so highest bonds, cash, can see major benefit from YCC relief
• Years of low ROE at 5-7% seem behind MUFG now with 12-17% in past two quarters, where leverage is not out of control, with cost improvements key
• Loss loans down 29% over past two years, can support low credit costs, which dropped sharply from 81bps to 15bps from 3Q23 to 1Q24, possibly moving to reversals

• IHI’s share price has declined 16% on news that Pratt & Whitney would need to ground more planes due to problems with its PW1100 turbofan engines
• IHI has a 15% share of the revenue and risk from this program. The new engine was expected to be a major earnings driver over the next several years
• We believe that IHI will be forced to revise down OP guidance to a loss. The bigger impact could be on FCF and future capex plans. 

• Japan’s Universal Entertainment’s Okada Manila casino unit removes another obstacle to its long quest to transform into a NASDAQ traded IPO.
• Judge rules that Okada is free of any obligations to US Space 26 Capital Partners.
• UE’s goal to take the casino public, despite expectations that the Spac will appeal, is likely to move forward toward identifying a new partner.

• The job openings in the US declined to 8.827m in July 2023, marking the lowest since March 2021, and falling well below projected 9.465m job openings for the month.
• On the other hand, web traffic on Recruit Holdings (6098 JP) ’s job platform Indeed has declined in July compared to June 2023 while it has improved slightly on Glassdoor.
• HR Tech segment’s top line growth declined 9.1% YoY in 1QFY03/2024 and the company has shifted into a new pricing model which we think would further impact segment’s growth.

• On 5 September, JFE Holdings (5411 JP) saw an article out of a capital raising. It was confirmed later in the day. Huge volumes traded. The stock fell sharply.
• The offering supply/demand dynamics are…. complicated. The offering is to foreign instos. The net demand is probably mostly retail and index, and positioning is… also complicated.
• The EPS dilution is already accounted for. The fall against Nippon Steel pretty much does it after considering the discount expected. 

• Skincare/Cosmetics company I-NE (4933 JP) on 31 August (¥2947) announced it would move to TSE Prime on 19 September, and announced a Secondary Offering by CEO Onishi-san to get there.
• There was no greenshoe provided. The stock popped. Then drifted back to ¥3025 and the Offering priced today at ¥2,934/share. 
• 75% went to Asian/European (non-US) offshore investors, and the rest to onshore institutions, which is unusual. But now we look to the TOPIX inclusion.

• Quiddity’s “Who is Ready” series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.
• Since my last insight, three new TOPIX Inclusion events have been confirmed: M&A Research Institute (9552 JP), FP Partner (7388 JP), and I-NE (4933 JP) 
• Separately, Core Concept Technologies Inc (4371 JP) has announced it intends to work towards a Prime Market move in the future.

• The Board of YSK has recommended that shareholders accept a TOB for the company’s shares
• Although a 35% premium to the undisturbed share price, the deal is not particularly generous to long-suffering shareholders
• Activist investor, Minami Aoyama, has been buying a significant stake in YSK. Will the deal go through?

• Since so many companies have not prepared for internal female talent, the trend of hiring female independent outside directors will continue for the foreseeable future.
• Metrical studies have confirmed the tendency for the percentage of female board members to show a more significant positive correlation than the number of female board members. 
• This is consistent with the expectation that the increased weight of women board members’ voices on the board will contribute to value creation. 

• 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 – Doosan Robotics (454910 KS), ARM Holdings (1822695D US), VNG (VinaGame) (VNG US), Integral Corporation (5842 JP) IPOs and Aquila Acquisition Corporation (7836 HK) de-SPAC.
• Event-Driven developments – JMDC (4483 JP), Intage Holdings (4326 JP), Mason Group Holdings (273 HK), Liontown Resources (LTR AU), Newcrest Mining (NCM AU), Orecorp Ltd (ORR AU). 

• Shin-Etsu Polymer Co., Ltd. has entered into a contract to transfer its PVC pipe manufacturing business to Sekisui Chemical Co
• Asset Value, a vocal activist shareholder, has likely had some strong words about better capital allocation.
• The unwinding of the parent-child relationship (one way or the other) is where the real value creation lies

• Starting in 2024, Shimadzu plans to produce high-end analytical instruments and medical systems in China. It must do this in order to maintain market access. 
• China is the company’s largest and fastest growing market outside Japan. Concerns about IP protection notwithstanding, we regard this as a positive development.
• The shares are down 10% from its 52-week high and selling at 23x this fiscal year’s EPS guidance, which looks conservative. Buy for the long term.

• The Nikkei 225 INDEX fell -5.77% during July and August (CC=-2). Currently the index is down for September: this month’s negative Close would be = CC=-3, a strong LONG signal.
• The index reached a low = 31275.25 in August, right in the middle of the 32391-30600 support price band indicated in our previous MONTHLY Trajectories Analysis,  50%-75% reversal probability.
• LONG Support levels are confirmed, in this insight we will analyze the new, re-calculated Resistance levels, to evaluate how far/how long the index could rise, if it rallies.

• In February 2022, Noritsu Koki (7744 JP) sold a chunk of JMDC (4483 JP) to Omron Corp (6645 JP) for nearly US$1bn. 7mos later, Omron supported a primary offering.
• Now Omron is going to 50+%, as Noritsu Koki is getting out. Other investors have to participate for this to succeed. 
• The question of pro-ration may be a question of Elmer vs Mr Partridge. But Elmer has a point here. 

• The changes at the Nikkei 225 September rebalance were announced on 4 September. The rebalance of the HSI, HSCEI, HSTECH and HSCI was implemented on the same day.
• The changes to the MVIS indices were announced on 8 September and will be implemented at the close on 15 September. The S&P/ASX family will also rebalance on 15 September.
• After a month and a half of big inflows to onshore China ETFs, there were small outflows from a lot of ETFs during the week.

• The Nikkei Index Team announced the changes to the Nikkei 225. That triggers flows of about ¥480bn a side, and some big, big changes.
• As interest rates and inflation remain high, investors will (should) continue to prefer lower-risk investments over higher-risk growth companies such as de-SPACed Aquila Acquisition Corporation (7836 HK).
• The Liontown Resources (LTR AU) / Albemarle Corp (ALB US) transaction looks done. However, Gina Rinehart may have other ideas.

• 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, things are getting busy again with multiple deals live across the region, whic his a refreshing change from the slow start in the first half.
• There were only a few placement this week, but what the lacked in volume they made up for in size. 

• The need to obtain investment capital for future business development or the presence of stakeholders with a strong desire to improve asset efficiency may be the catalyst for selling property.
• Of course, cash should be used to return to shareholders, but the stock market expects more profit growth, so higher profit margins and ROE are required.
• The data from Ministry of Finance indicates that cash still hasn’t been spent on investments. Cash appears to be currently being used reluctantly for investments that will generate future profits.