Japan

• Last week I wrote about another situation, noting Equity Offering Into TOPIX Inclusion is a standard construct. Here we have another. 
• DX and HR Support company Core Concept Technologies Inc (4371 JP) today announced a large (it ups Real World Float by 64%, and is 33 days of ADV) secondary offering.
• The “reason” for the offering mentions a desire to move to TSE Prime in future.

• During the initial months of 2QFY24, both Tokyo Disneyland and Tokyo DisneySea experienced a significant double-digit QoQ drop in Google search interest.
• Using Google Search trends data for the first two months of 2QFY24, we anticipate a QoQ decline of about 17% in Oriental Land’s Theme Parks revenue, dropping below ¥100bn.
• 2QFY24 consensus OP is 2.5x above the company’s guidance, and both short and medium term consensus revenue and OP targets for Oriental Land (4661 JP) appear blatantly unachievable.

• Sogo & Seibu’s labor union threatens strike if job protection talks stall. This emphasizes the number of considerations Seven & I Holdings (3382 JP) had to consider during changes.
• Had ValueAct shown more patience, they might have worked with Seven & I to improve the struggling Eto Yokado supermarkets business.
• Thus, ValueAct’s investor activism campaign seem unlikely to achieve a full restructuring of underperforming businesses at Seven & I.

• Rebound on Nikkei 225 INDEX may not last for long, 2-3 weeks tops, it will encounter resistance no later than mid of September (most unfavorable month for stocks gains).
• Resistance levels to watch vary, depending on number of weeks up. For this week and the next, a new pullback could start from 32476 and 32817.
• If the index goes =>33000, it means it is rallying and will not correct into September, the rally then could last into October.

• It’s necessary to clearly present cash allocation policy to investors and communicate with them, but unless this policy is convincing and feasible, investors cannot envision an increase in corporate value.
• Companies that use ROE or ROIC as KPIs and disclose their cost of capital are still limited. The low return on cash flow may be the reason behind this.
• As TOPIX is correlating more rapidly with nominal GDP than with P/B after 2020, there’s increasing need to communicate to investors that free cash flow will grow through cash allocation.

• In 2Q, net sales rose 26%, operating profit rose 28%, and net profit rose 46%.
• The strong growth in net profit is attributed to the absence of the loss on valuation of investment securities recorded in the previous year.
• Management Consulting business continued to perform well with sales rising 16%.

• On 22 August, TSE Growth-listed insurance agent  FP Partner (7388 JP) announced a special dividend, a secondary offering of 1.4mm shares, and a move to TSE Prime.
• The equity offering is designed to raise tradable share percentage to meet the TSE Prime listing requirement. The move to Prime on 11 September means a TOPIX inclusion end October. 
• The pattern of “Offering To Get Float to Get TOPIX Inclusion” is well-trod. This one has some interesting dynamics.

• Integral Corporation (5842 JP) is an independent Japanese private equity firm seeking to raise about US$174 million. The pricing is on 4 September, and the listing is on 20 September. 
• We previously discussed the IPO in Integral Corporation IPO: The Bull Case and Integral Corporation IPO: The Bear Case. 
• In this note, we discuss forecasts and valuation. Our analysis suggests that the indicative IPO price range of JPY2,800-3,400 per share is unattractive. We would give the IPO a pass.

• The Keihin Co is a ¥10.94B ($74.7m) market cap logistics company in Japan that owns and operates warehouses and distribution facilities mostly in and around Tokyo.

• They’ve been profitable for 19 of the last 20 years and have compounded tangible book value at 6.5% over the last decade while growing profits.

• Stock has gone nowhere over the last decade despite compounding tangible book value and net income at a respectable clip.

• On Friday after the close, SBI Holdings (8473 JP) – which currently owns 24.63% of Medical Data Vision (3902 JP) – announced it would buy another 2,043,200 shares.
• This market purchase would lift them to just under 30% by year-end.
• There have been similar trades done by others in the past and they were worth looking at.

• Why is JSR Corp (4185 JP) trading wide? FUD and Flows.
• Intouch Holdings (INTUCH TB) plumbs new 12-month lows for its implied stub, and NAV discount as the former PM returns from exile. 
• You would NOT want to short M&A Research Institute (9552 JP)  into the inclusion. But the ascension to TOPIX is not a surprise.

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• ARM Holdings finally made its IPO filings public, while Doosan Robotics too kicked of its much awaited listing.
• In the placement space, Union Bank Of India (UNBK IN) managed to upsize its offering, while APA Group (APA AU) pulled off a non-accretive acquisiton.

• Metrical’s research shows that % of female board members has significant positive correlation with ROE(2019), with ROA(2020), with ROA and Tobin’s Q(2021), and with ROE, ROA and Tobin’s Q(June 2023).
• A measure of a company’s seriousness about diversity is the ratio of internal executive directors. Female directors rely heavily on outside directors and are rarely promoted from within the company.
• To bring value to a company, diversity must be built in at every workplace level, but fewer female employees than male are promoted to managerial positions in two-thirds of companies.

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 Hongqiao
3. China Jinmao Holdings
4. Geely Auto
5. First Pacific Co

and more…

• Last week (Aug. 18) we discussed the 10-year Treasury yield and DXY testing respective resistance (4.3%-4.35% and $103.50-$103.70).
• As long as no decisive breakouts in the 10-year yield or DXY, we were buyers on the pullback to $93 on MSCI ACWI (ACWI-US).
• Outside of our overweight countries (Japan, India, Taiwan, Greece), defensive Sectors continue to lag. We highlight buys in Technology, Services, Consumer Discretionary, Industrials, Materials/Energy, and Financials.

• Daikin’s air conditioning business continues to benefit from the secular trends of urbanization, climate change, and rising incomes.  
• However, the same logic might not apply to heat pumps, which face far more “structural” issues, warranting a lower valuation.
• Overall, we believe that Daikin deserves to trade at its historical multiple of 15x EV/EBIT and see 20% downside from here.

• Metrical’s past analysis also shows that a company’s capital allocation to investors is effective in raising valuations, so a proper allocation between investment and shareholder return is a baseline.
• The correlation analysis between TOPIX and nominal GDP suggests that the shift from deflation to inflation has triggered overseas investors to focus on the further expansion of company profits.
• While average P/B and ROE have remained flat, the rise in P/E has boosted the stock recently. This suggests that further share price appreciation will require an increase in profits.

• Five plus years ago, Toshiba Corp (6502 JP) sold down a 26% stake in small cap Shibaura Mechatronics (6590 JP) to get to a consolidated 13%-ish stake. 
• This was discussed in Toshiba Selldown of Shibaura Mechatronics (6590) back then. Yesterday, we got news Toshiba would sell out its remaining stake. And there’s a buyback. Maybe.
• The stock has reacted badly on Day 1, despite a lack of dilution. Shareholder structure matters. 

• Yesterday, M&A Research Institute (9552 JP) announced it would list on the TSE Prime section on 29 August, which means it will join TOPIX at the close of 28-Sep-2023.
• This is NOT a surprise. On 27 June, the company announced a secondary offering of 1.631mm shares (by the founder/CEO), and said it had applied for TSE Prime transfer. 
• I take a look at how this could play out. 

• Technology trading company providing everything from electronics products to IT solutions
• Takachiho Koheki is a trading company highly specialized in electronics technology, introducing the world’s cutting-edge electronics products to Japan ahead of competitors, with engineering employees accounting for 42.2% of its workforce.
• Accordingly, the company’s strength lies in proposal-based consulting sales that provide optimal solutions based on customer needs.

• Integral Corporation (5842 JP) is an independent Japanese private equity firm seeking to raise about US$175 million. The pricing is on 4 September, and the listing is on 20 September. 
• In Integral Corporation IPO: The Bull Case, we highlighted the key elements of the bull case. In this note, we outline the bear case.
• The bear case rest on the declining mix of fee-earning AUM, growth driven by volatile investment income and uninspiring 1HFY22 performance in fee-related revenue growth and margin.

• Perovskite solar cells have the potential to be more efficient and less expensive than traditional silicon solar cells.
• Recent research suggests that the global market for Perovskite PV could be worth around $12 billion in 2032
• If Sekisui Chemical were to take a 10% market share, then the potential impact on earnings could be 22%.

• There are concerns about the ability of female directors hired solely for the purpose of recruiting women directors without a reasonable director nomination process to demonstrate strength on the BOD.
• Board diversity issues were considered a low priority until more institutional investors voted against the top management of companies with zero female directors at shareholder meetings.
• Given the small population of full-time female employees and the relatively young age bias, it’s likely that even in 2030, most female board members will be relying on outside talent.

• When this was launched, it traded more volume than expected on the first day, then again on the second day. Since then it has traded cheap vs initial estimates.
• A week after the launch, two separate Large Shareholder Filings came out. Those bear scrutiny.
• The back end trade is still an interesting one in my opinion.

• Integral Corporation (5842 JP) is looking to raise around US$175m 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 this note, we talk about the positive aspects of the deal.

• Integral Corporation (5842 JP) is looking to raise around US$175m 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 this note, we talk about the not-so-positive aspects of the deal.

• Integral Corporation (5842 JP) is an independent Japanese private equity firm seeking to raise about US$175 million. The pricing is on 4 September, and the listing is on 20 September. 
• Integral primarily targets investments in Japanese medium-sized companies and invests its own capital both through investments in funds under management and through direct investments.
• The bull case rest on rising AUM, strong operating income growth, cash flow potential through material unrealised carried interest and solid potential returns on its principal investments.

• Olympus Corp (7733 JP) announced muted Q1FY24 result. Revenue increased 8% YoY to ¥208B, while operating profit declined 50% YoY to ¥22B. A one-time gain has inflated the net profit.
• Revenue missed about 3% compared to the plan. Product shipment hold and parts supply shortages represented about 1.5% points out of the total miss of 3%.
• Olympus has reiterated FY24 guidance and expects FY24 revenue of ¥914B (+4% YoY) and operating profit of ¥163B (-13% YoY). In FY23, the company missed operating profit guidance.

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.

• PT Pertamina (Persero)
• Softbank Group

• The TSE listing rules that include numerical targets for female board members are limited to prime market listed companies, so the majority of listed companies are not covered.
• The “priority policy” on diversity is not budgeted or legislated. In the absence of underlying legislation, it is left to companies to decide how seriously they will implement it.
• Regarding “30% or more female board members by 2030,” if companies want to achieve this goal, they’ll have to rely on female outside board members to make up the numbers.