Japan

In today’s briefing:

Mar25 Nikkei 225 Rebal: Considering Fast Retailing Capping…. Again…
Tokyo Metro (9023 JP) IPO: Valuation Insights
Aica Kogyo (4206) – Small Offering Chips Away At Cross-Holdings
Rigaku Holdings (268A JP) IPO: The Bull Case
Daiseki Co Ltd (9793 JP): 1H FY02/25 flash update

Mar25 Nikkei 225 Rebal: Considering Fast Retailing Capping…. Again…

At end-September, the Nikkei 225 semi-annual review imposed a “cap” on Fast Retailing (9983 JP) in the Average, applying a 0.9 coefficient to the Price Adjustment Factor.
At its current weight, Fast Retailing will be capped again in March 2025. If the stock outperforms Nikkei 225 by another 3% before 31 January 2025, it could be double-capped.
And an additional 16% would mean ¥1.1trln of sales in March. But like last time, this is a rubber band which stretches. Too far, and selling pressure is obvious.

Tokyo Metro (9023 JP) IPO: Valuation Insights

Tokyo Metro (9023 JP), a mass transit operator, is seeking to raise up to US$2.3 billion. Pricing is on 15 October, and the listing is on 23 October.
We previously discussed the IPO in Tokyo Metro (9023 JP) IPO: The Bull Case and Tokyo Metro (9023 JP) IPO: The Bear Case.
In this note, we discuss valuation. Our analysis suggests that Tokyo Metro is attractively valued at the IPO price compared to peer multiples.

Aica Kogyo (4206) – Small Offering Chips Away At Cross-Holdings

On Monday, 30 September, shareholders of US$1.4bn market cap chemicals and housing materials supplier Aica Kogyo (4206 JP) announced a Secondary Share Sale. It’s small at 2% of market cap.
The Offering is 2.1mm shares including greenshoe. The company also raised its H1 dividend guidance slightly (¥53/share to ¥56/share) and announced a buyback which should cover 57% of the offering.
It’s a small deal. There are a lot more cross-holdings behind that but the company is cash-rich and the company is very cheap/underlevered on an LBO basis.

Rigaku Holdings (268A JP) IPO: The Bull Case

Rigaku Holdings (268A JP) is Japan’s leading manufacturer of X-ray analysis, measurement and testing instruments. It is seeking to raise up to US$760 million.
In Japan, Rigaku’s XRD (X-ray diffraction) has a high market share of 75%. Around 70% of its revenue is derived from customers outside Japan.
The bull case rests on high customer switching costs, peer-leading revenue growth, top-quartile profitability, FCF generation, and low leverage.

Daiseki Co Ltd (9793 JP): 1H FY02/25 flash update

By Shared Research

Consolidated 1H sales decreased by 8.3% YoY to JPY32.8bn, meeting the company’s target of JPY32.7bn.
Consolidated operating profit for 1H decreased by 5.5% YoY to JPY7.3bn, exceeding the target of JPY6.7bn.
Net income attributable to owners of the parent increased by 2.1% YoY to JPY4.9bn, surpassing company forecasts.

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Oct 01

Daily Brief Japan: Descente Ltd, T Gaia Corp, Ana Holdings, Softbank Group, Tokyo Metro, Sanwa Holdings, TSE Tokyo Price Index TOPIX, Honda Motor Co Ltd (Adr) and more

In today’s briefing:

Itochu (8001 JP) Lowball TOB for Descente (8114) Is Here – Trades Tight But No Big Holder Appeared
T-Gaia (3738 JP) – Potential Premium Takeout Story Turns To An Ugly Takeunder
T-Gaia (3738 JP): Reality Check as Bain Launches a Takeunder
Quiddity JPX-Nikkei 400 Rebal 2025: End-Sep 2024 Ranks
Softbank (9984 JP) – Despite the High NAV Discount, We See Greater Headwinds; Downgrading to Neutral
Descente (8114 JP): Itochu’s (8001 JP) Tender Offer Launches
Tokyo Metro IPO – Thoughts on Valuation
Sanwa Holdings (5929) | Revolving Door of Activist Influence
Not Many Companies Have Implemented Full-Scale Improvements in Return on Capital
Honda Motor Company: Will The Much Needed Strategic Shift Towards EVs Finally Pay Off? – Major Drivers

Itochu (8001 JP) Lowball TOB for Descente (8114) Is Here – Trades Tight But No Big Holder Appeared

Today, Itochu Corp (8001 JP) announced that it had received SAMR approval and would launch its Tender Offer to take private its affiliate, Descente Ltd (8114 JP).
As warned last year, Descente is cheap on a forward basis due to very strong growth and profitability of Descente China Holdings but Itochu can downplay that future.
And indeed, it appear they did, and unless someone takes them to task, this probably gets done. So far, nobody has.

T-Gaia (3738 JP) – Potential Premium Takeout Story Turns To An Ugly Takeunder

Today, just before the close, the Nikkei put out a scoop that Bain would buy T Gaia Corp (3738 JP) for ¥140bn. Sounds big. It was a 30% discount.
There is a three Tender Offer process whereby minorities, who could be squeezed out regardless, are offered the opportunity to block the deal by not tendering at ¥2,670.
This not-quite “majority of minority” of the super-minority is an interesting governance condition established by the Special Committee. It bears some study.

T-Gaia (3738 JP): Reality Check as Bain Launches a Takeunder

T Gaia Corp (3738 JP) disclosed a Bain tender offer at JPY2,670, a 35.9% premium to the undisturbed price but a 27.2% discount to the last close.
Bain has set the minimum number of shares to be purchased at a 12.67% ownership ratio to appease the Board, which has a neutral recommendation.
Bain hopes the offer’s harsh reality check will burst the share price bubble, nudging minorities to accept. An auction process suggests that the chance of a competing offer is low.

Quiddity JPX-Nikkei 400 Rebal 2025: End-Sep 2024 Ranks

By Janaghan Jeyakumar, CFA

JPX-Nikkei 400 is composed of common stocks listed on the Tokyo Stock Exchange. It is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents.
A periodic review is conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year. We look at the potential forward inclusions and removals every month.
Below is a look at potential Inclusions and Removals for the JPX-Nikkei 400 Rebalance to come in August 2025 based on trading data as of end-September 2024.

Softbank (9984 JP) – Despite the High NAV Discount, We See Greater Headwinds; Downgrading to Neutral

By Victor Galliano

The SoftBank NAV discount is historically high, which makes it appear optically attractive; despite this, we turn neutral on SoftBank group from our previous positive recommendation, due to its headwinds
JPY strength is a key challenge, especially since the new Japanese prime minister supports the BoJ normalising monetary policy; this means BoJ tightening whilst many other central banks are easing
Arm Holdings’ super premium valuation versus its peers is another potential headwind for SoftBank group shares and NAV, combined with the high correlation between Arm Holdings and SoftBank group shares

Descente (8114 JP): Itochu’s (8001 JP) Tender Offer Launches

Descente Ltd (8114 JP) has announced that Itochu Corp (8001 JP)’s tender offer precondition has been satisfied. The offer terms are unchanged at JPY4,350 per share.
The offer is arguably light due to the peer re-rating and historical trading ranges. It is also below the midpoint of the special committee’s IFA DCF valuation range.
Nevertheless, the offer will likely succeed. There is no vocal opposition, the volume traded through terms is low, and the offer implies a premium multiple compared to peers.

Tokyo Metro IPO – Thoughts on Valuation

Tokyo Metro (9023 JP)‘s shareholders aim to raise up to US$2.3bn in its Japan IPO.
Tokyo Metro (TKM) is one of the two metro network operators in the Tokyo region. It operates nine subway lines with a total of 180 stations.
We have looked at the company’s past performance in our previous notes. In this note, we will talk about valuations.

Sanwa Holdings (5929) | Revolving Door of Activist Influence

By Mark Chadwick

ValueAct Capital took a significant 5.9% stake in Sanwa. Dalton Investments has also been a shareholder, but had most recently sold down to under 5% in June
Sanwa Holdings (5929 JP) presents an attractive investment opportunity rooted in its strong global market position, undervalued stock price, and growth potential
We see 30% upside, based off historical revenue growth, 11% EBIT margins, and an exit multiple of 12.5x (global peers).

Not Many Companies Have Implemented Full-Scale Improvements in Return on Capital

Certainly, the “TSE’s request” has begun to change companies’ mindsets, but what we focus on now is whether they have put the plan into action and whether it’s producing results.
The importance of investor engagement is also indicated in the Japan Investor Relations Association’s survey summary. Companies that receive overseas investor engagement are furthering their efforts to improve profitability.
Even among companies with high IR awareness, few have taken serious steps to reform their business portfolios, as under 60% have begun to reform business portfolios.

Honda Motor Company: Will The Much Needed Strategic Shift Towards EVs Finally Pay Off? – Major Drivers

By Baptista Research

Honda Motor Co., Ltd. recently reported its financial results for the first quarter of fiscal year 2025, marking a period of significant transformation and adaptation in the face of ongoing global economic fluctuations, particularly in the key markets like the U.S., China, and new energy vehicle (NEV) sectors.
This summary provides a balanced view, underscoring both opportunities and challenges the company faces as it navigates complex market dynamics.
Baptista Research looks to evaluate the different factors that could influence the company’s price in the near future and attempts to carry out an independent valuation of the company using a Discounted Cash Flow (DCF) methodology.

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Sep 30

Daily Brief Japan: Fuji Soft Inc, Kawasaki Heavy Industries, Tokyo Metro, TSE Tokyo Price Index TOPIX, Srg Takamiya and more

In today’s briefing:

FujiSoft (9749) – Somewhat Inexplicable Renewed Opinion of Fairness on KKR Tender
Best Outright and Pair Trades for an Ishiba-Led LDP
Tokyo Metro (9023 JP) IPO: TPX Inclusion in November; Global Indices: One in October, One in Feb
Tokyo Metro IPO – Peer Comparison – Pre-COVID to 1Q25
Achieving the % of Female Board Members by Matching Numbers Doesn’t Achieve the Original Goal Either
Takamiya (2445 JP) – 1Q Follow-Up

FujiSoft (9749) – Somewhat Inexplicable Renewed Opinion of Fairness on KKR Tender

On the 19th of September, KKR amended the terms and Scheme/Structure of its Tender Offer for Fuji Soft Inc (9749 JP). I thought the new terms coercive.
On the 26th, FujiSoft decided there had been no change detrimental to general shareholders. On the 27th, KKR amended the Tender Offer Registration Statement to reflect FSI’s revised Opinion.
That means Bain needs to change FSI’s mind or come out with a big number before the end of the First Tender, leaving lots of stock for Round Two.

Best Outright and Pair Trades for an Ishiba-Led LDP

By Andrew Jackson

Expect continued buying in defense related, as well as banks and life insurance, renewable energy, rails, and medical IT plays with Shigeru Ishiba at the helm.
The Market will be quick to rotate out of names which spiked into Friday’s close on expectation for a Sanae Takaichi win in the LDP election.
Ishiba has been a vocal critic of Abenomics, and his potential policies aimed at higher taxes for investment incomes and capital gains are set to weigh on the Japanese market.

Tokyo Metro (9023 JP) IPO: TPX Inclusion in November; Global Indices: One in October, One in Feb

By Brian Freitas

Tokyo Metro (9023 JP)‘s listing has been approved by the JPX and the stock is expected to start trading on the Prime Market from 23 October.
At the reported indicative IPO price of JPY 1100/share, Tokyo Metro (9023 JP) will be valued at JPY 639.1bn (US$4.49bn).
The stock should be added to one global index on 29 October, to the TOPIX INDEX on 28 November, while another global index inclusion will need to wait till February.

Tokyo Metro IPO – Peer Comparison – Pre-COVID to 1Q25

Tokyo Metro (9023 JP)‘s shareholders aim to raise up to US$2.3bn in its Japan IPO.
Tokyo Metro (TKM) is one of the two metro network operators in the Tokyo region. It operates nine subway lines with a total of 180 stations.
We have looked at the company’s past performance in our previous note. In this note, we will undertake a peer comparison.

Achieving the % of Female Board Members by Matching Numbers Doesn’t Achieve the Original Goal Either

Since it’s difficult for all prime market companies to achieve the 30% female board members by 2030, the goal may be achieved by including non-statutory executive officers in board members.
Companies are stuck in matching numbers, and government is unwilling to address the fundamental issues. There’s risk that original objective of shifting to value-creating management through ensuring diversity is lost.
Policy changes to create environment where women don’t have to leave workforce for childbirth, childcare, etc., and to change people’s mindsets are impossible without the leadership of a non-diverse legislature.

Takamiya (2445 JP) – 1Q Follow-Up

By Sessa Investment Research

Takamiya (hereafter, the Company) reported its 1Q FY2025/3 sales of ¥9,745 mn (-1.5% YoY), operating profit of ¥262 mn (-35.8% YoY), ordinary profit of ¥344 mn (-44.1% YoY), and profit attributable to owners of parent (hereafter, net profit) of ¥195 mn (-53.2% YoY).
By segment, the Platform Business and Overseas Business saw increases in both sales and profit, while the Rental Business saw sales increase but profit decline, and the Sales Business saw declines in both sales and profit.
1H 2025/3 and the full-year forecast remains unchanged from the initial forecast.

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Sep 29

Daily Brief Japan: Fuji Soft Inc, Tokyo Metro and more

In today’s briefing:

(Mostly) Asia-Pac M&A: Dyna Mac, Platinum Asset, Fuji Soft, JTower, Arvida, Korea Zinc, Sun Art
Weekly Deals Digest (29 Sep) – Tokyo Metro, CR Beverage, K Bank, Fuji Soft, Sun Art, Xingda, Capitol

(Mostly) Asia-Pac M&A: Dyna Mac, Platinum Asset, Fuji Soft, JTower, Arvida, Korea Zinc, Sun Art

By David Blennerhassett

I tally 39 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
Two new deals discussed on Smartkarma this week: Xingda International (1899 HK) and NSL Ltd (NSL SP). Sun Art Retail (6808 HK) also susppended due to the Takeovers Code.
Key updates took place on: Dyna Mac Holdings (DMHL SP), Platinum Asset Management (PTM AU), Fuji Soft (9749 JP), JTower (4485 JP), Arvida (ARV NZ), and Korea Zinc (010130 KS).

Weekly Deals Digest (29 Sep) – Tokyo Metro, CR Beverage, K Bank, Fuji Soft, Sun Art, Xingda, Capitol

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: Tokyo Metro (9023 JP), K Bank (279570 KS) and China Resources Beverage (CRB HK) IPOs.
Event-Driven developments: Capitol Health (CAJ AU), Sun Art Retail (6808 HK), Xingda International (1899 HK), Fuji Soft Inc (9749 JP), Dyna Mac Holdings (DMHL SP).

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Sep 28

Daily Brief Japan: Kyowa Kirin Co Ltd, Pan Pacific International Holdings, Nikkei 225 and more

In today’s briefing:

Kyowa Kirin (4151 JP): Reports Phase 3 Trial Result in Atopic Dermatitis; Rivalry Remains Doubtful
Governance and Shareholder Return Are Likely to Improve, and Investors Continue to Pay Attention
EQD | The Nikkei At The Top

Kyowa Kirin (4151 JP): Reports Phase 3 Trial Result in Atopic Dermatitis; Rivalry Remains Doubtful

By Tina Banerjee

Kyowa Kirin Co Ltd (4151 JP) announced top-line results of the Phase 3 trial of rocatinlimab targeting moderate to severe Atopic Dermatitis (eczema), which affects 6.6M patients in the U.S.
The trial met co-primary endpoints and reached statistically significant differences from placebo for all key secondary endpoints. However, efficacy data was less compelling compared to current standard of care.
Kyowa Kirin shares nosedived mainly on the concern over competitive strength of rocatinlimab. Amid gloomy outlook, Kyowa Kirin shares will need time to recover.

Governance and Shareholder Return Are Likely to Improve, and Investors Continue to Pay Attention

Since the total shares held by Founder Family, trust Banks and FamilyMart exceed 50%, this director appointment proposal will pass unless the shareholders held by the trust banks oppose it.
Challenges will be noted in the function of the nominating committee, which nominated directors with few elements falling under the skills item, and in the disclosure of the skills matrix.
While PPIH’s free cash flow is ample and growth is expected, shareholder returns and governance remain challenges, but with overseas investor equity exceeding 30%, much improvement is expected in future.

EQD | The Nikkei At The Top

By Nico Rosti

The last 2 weeks’ upswing in the Nikkei 225 INDEX does not change our view: it is WEEKLY overbought and October is a coin flip according to our seasonal models.
The index could rise further at this point, herd behavior may force investors to pile up into the rally, but our models say rising well past 40k will be hard.
A pullback is not necessarily a great occasion to buy, as already explained in our previous insight, the N225’s trend does not look good, at the moment.

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Sep 27

Daily Brief Japan: Fuji Soft Inc, Rigaku Holdings, Resona Holdings and more

In today’s briefing:

Fuji Soft (9749) – Possible Issues with New KKR Amended Terms
Fuji Soft (9749 JP): KKR on the Home Stretch as Bain Dithers
Rigaku IPO – The Negatives – Not Every Segment Has Been Performing; Has a Large Overhang as Well
Japanese Bigger Cap Banks – BoJ’s Pause Does Not De-Rail Our Expectations for Higher Interest Rates

Fuji Soft (9749) – Possible Issues with New KKR Amended Terms

On 8 August, KKR and Fuji Soft Inc (9749 JP) announced a Tender Offer for the company. It was, at the time, an intention to do so. KKR needed approvals.
Fuji Soft had KKR terms, and timing, and approved them. KKR then changed the terms and timing. Now on the 19th, they changed the terms again.
This puts Fuji Soft in a kind of quandary. It’s important to think about why and what that leads to.

Fuji Soft (9749 JP): KKR on the Home Stretch as Bain Dithers

The Fuji Soft Inc (9749 JP) Board has recommended KKR’s first tender offer (JPY8,800). The Board will announce its view on the second tender offer on launch.
The Board sounded out Bain’s progress on a binding proposal and 3D and Farallon’s on their irrevocable. The absence of a Bain binding proposal immensely helped the Board’s decision.
Bain has likely left it too late. With a higher offer, Bain could force a recommendation change and hope KKR is shamed into cancelling 3D and Farallon’s irrevocable.

Rigaku IPO – The Negatives – Not Every Segment Has Been Performing; Has a Large Overhang as Well

By Clarence Chu

Rigaku Holdings (268A JP) is looking to raise US$762m in its Japan IPO.
Rigaku engages in developing, manufacturing, sales and servicing scientific instruments specializing in X-ray technologies.
In this note, we will talk about the not so positive aspects of the deal.

Japanese Bigger Cap Banks – BoJ’s Pause Does Not De-Rail Our Expectations for Higher Interest Rates

By Victor Galliano

JGB 10Y bond yields have slipped from their July high, but are well above historic lows; the outlook, in our view, is still for BoJ monetary tightening before year-end 2024
We see a constructive outlook with recovering domestic loan growth, available funding as well as sector evidence of higher lending rates; also, largely well controlled unrealized losses on bond portfolios
We keep Resona and Mizuho as our top picks for their strong gearing to higher interest rates and attractive valuations in this Japanese bank group, along with Chiba and Concordia

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Sep 26

Daily Brief Japan: Tohokushinsha Film, Tokyo Metro, Rigaku Holdings, ASICS Corp, Japan Metropolitan Fund Investment Corporation, TSE Tokyo Price Index TOPIX, Rakuten and more

In today’s briefing:

Tohokushinsha (2329 JP) To 3D – “Not Today”; 3D May Go To The Mattresses
Tokyo Metro (9023 JP) IPO: The Bear Case
Rigaku Holdings IPO: Initial Thoughts
Asics (7936) | Q3 Preview; Revision of MTP
Rigaku IPO – The Positives – Catering to a Range of End Industries, and Track Record Has Been Strong
Japan Metropolitan Fund Placement – Relatively Small Deal to Digest
Tokyo Metro IPO – The Negatives – Hasn’t Recovered Fully but Div and Debt Have
Has the “Unit of Investment” Principle Spoiled the Companies?
Rakuten Mart Launching This Month

Tohokushinsha (2329 JP) To 3D – “Not Today”; 3D May Go To The Mattresses

3D Investment Partners bought 5% of Tohokushinsha Film (2329 JP) by Mar-2023. A year later they had 17+%. 3D proposed changes. In July, 3D proposed a takeover, asking for DD.
Tohokushinsha responded to the proposals, then offered due diligence to 3D based on terms set by a Special Committee. 3D did not want those strict DD terms.
Yesterday, Tohokushinsha said “Fine.” The stock today fell 10% today. This is not a stalemate, but it means 3D may start to play harder.

Tokyo Metro (9023 JP) IPO: The Bear Case

By Shifara Samsudeen, ACMA, CGMA

Tokyo Metro (9023 JP), a mass transit operator, is seeking to raise up to US$2.3 billion. Pricing is on 15 October, and the listing is on 23 October.
In Tokyo Metro (9023 JP) IPO: The Bull Case, we highlighted the key elements of the bull case. In this note, we outline the bear case.
The bear case rests on mid-tier revenue growth, low revenue diversification, the highest leverage among peers and a sizeable post-IPO share overhang.

Rigaku Holdings IPO: Initial Thoughts

Rigaku Holdings (268A JP) provides cutting-edge analytical solutions centered on X-ray technology globally. The company is one of the largest players globally in X-ray diffraction instrument market.
The company has filed for an IPO on the Tokyo Stock Exchange and plans to raise proceeds of around US$900m from the IPO at a potential valuation of US$2bn.
In this insight, we discuss Rigaku’s business model, key drivers, financials and outlook for the company.

Asics (7936) | Q3 Preview; Revision of MTP

By Mark Chadwick

Asics is seeing robust D2C sales growth, now 40% of total sales, driving gross margins to 55.5% (+4.5 pp YoY) in 1H24.
High-Margin models and strong sales in Onitsuka Tiger and Sportsstyle categories support a forecasted 13% YoY sales increase in 2H24.
Asics’ strategic transformation, focusing on structural reforms and emerging markets, to drive upgraded MTP though FY26.

Rigaku IPO – The Positives – Catering to a Range of End Industries, and Track Record Has Been Strong

By Clarence Chu

Rigaku Holdings (268A JP) is looking to raise US$762m in its Japan IPO.
Rigaku engages in developing, manufacturing, sales and servicing scientific instruments specializing in X-ray technologies.
In this note, we will talk about the positive aspects of the deal.

Japan Metropolitan Fund Placement – Relatively Small Deal to Digest

Japan Metropolitan Fund Investment Corporation (8953 JP) aims to raise around US$140m to partly fund the acquisition of four assets.
The deal will be relatively small, in terms of ADV and dilution.
In this note, we will talk about the placement and run the deal through our ECM framework.

Tokyo Metro IPO – The Negatives – Hasn’t Recovered Fully but Div and Debt Have

Tokyo Metro (9023 JP)‘s shareholders aim to raise up to US$2.3bn in its Japan IPO.
Tokyo Metro (TKM) is one of the two metro network operators in the Tokyo region. It operates nine subway lines with a total of 180 stations.
In this note, we talk about the not-so-positive aspects of the deal.

Has the “Unit of Investment” Principle Spoiled the Companies?

The reason companies object to a reduction in the investment unit is the cost of shareholder relations, not the cost paid to the trust bank.
We should discuss whether it is better for the “unit of investment” principle to remain in place for the convenience of companies that want to pass company proposals smoothly.
It will be interesting to see if there will be a discussion on going back to basics and allowing single share holders to exercise their voting rights.

Rakuten Mart Launching This Month

Rakuten still gets a lot of flak for its mobile business but its core e-commerce operation continues to improve.
Rakuten will launch Rakuten Mart this month, an online supermarket but with Rakuten Ichiba vendors too.
Online food retailing is becoming a major source of competition with Amazon, Aeon and Seven & I all investing heavily but Rakuten is holding its own.

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Sep 25

Daily Brief Japan: Kioxia Holdings , Tokyo Metro, yutori and more

In today’s briefing:

Tech: Japan’s Biggest IPO in 6 Years, Kioxia, Is Off. Here Is the Likely Reason
Tokyo Metro IPO – The Positives – Quasi-Monopoly Status
Yutori Expands Through M&A Too

Tech: Japan’s Biggest IPO in 6 Years, Kioxia, Is Off. Here Is the Likely Reason

By Neil Campling

Significant peer price performance declines leaves IPO valuation stretched, the desired discount multiple to attract interest has suddenly become a premium
Investor interest in memory semiconductors, AI derivative stocks has cooled
Peer price sell-offs are extreme but could quickly change, reflecting the highly cyclical nature of the sector

Tokyo Metro IPO – The Positives – Quasi-Monopoly Status

Tokyo Metro (9023 JP)‘s shareholders aim to raise up to US$2.3bn in its upcoming Japan IPO.
Tokyo Metro (TKM) is one of the two metro network operators in the Tokyo region. It operates nine subway lines with a total of 180 stations.
In this note, we talk about the positive aspects of the deal.

Yutori Expands Through M&A Too

Zozo-Owned Yutori has just acquired a womenswear brand and plans a series of acquisitions, with ambitions to become the Zozo of the younger generation.
So far, it has grown very fast on the back of strong support from Japan’s youth looking for street fashion but this latest move will reach into new segments.
Unlike Zozo, Yutori is investing in a chain of stores which have helped push awareness and sales and is the right strategy for Japan’s store-addicted consumers.

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Sep 24

Daily Brief Japan: Advantest Corp, Tokyo Metro, Fast Retailing, TSE Tokyo Price Index TOPIX and more

In today’s briefing:

The Biggish Sep 2024 “Thursday-Friday Trade”
Tokyo Metro (9023 JP) IPO: The Bull Case
Uniqlo’s European Romance
How to Make a Non-Functioning Statutory Auditor Function

The Biggish Sep 2024 “Thursday-Friday Trade”

Every year it’s the same trade. This year it is Thursday and Friday. There is some funkiness to Monday too.
There is meaningful directional buying on one day, which then kind of gets stretched a bit. This year, circumstances suggest high confidence buying should be at the top end.
This year, because circumstances, I expect the trade is a lot larger than last year. I’d say ¥1.6trln.

Tokyo Metro (9023 JP) IPO: The Bull Case

Tokyo Metro (TKYMETRO JP), a mass transit operator, is seeking to raise up to US$2.3 billion. Pricing is on 15 October, and the listing is on 23 October.
Tokyo Metro is held 53.42% by the Minister of Finance and 46.58% by the Tokyo Metropolitan Government.
The bull case rests on a core high-quality asset, future growth drivers, top-quartile profitability, high FCF generation, and peer-leading dividend payout.

Uniqlo’s European Romance

Uniqlo’s European arm is on a roll, with more stores, higher sales and a loyal fan base. 35% of customers were under 29 last year up from 16% in 2019.
Uniqlo is also doing better at home but it needs the boost from newer markets given concerns over growth in China.
And it is far too early to know whether GU’s formal launch in the US will pay off but so far so good.

How to Make a Non-Functioning Statutory Auditor Function

Information asymmetries between shareholders/investors and board directors, between inside and outside board directors, between inside and outside statutory auditors, and between insiders and the rest are constant challenges.
Statutory auditors cannot be dismissed and have significant powers, including the right to investigate, and since statutory auditors are board members, they can attend and speak at board meetings.
To make statutory auditors function, establish a process for nominating statutory auditors, raise the compensation of outside auditors, and run an open board meeting where board members’ comments are respected.

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Sep 23

Daily Brief Japan: Kokusai Electric , PKSHA Technology, CELSYS, Tokyo Metro, Ain Holdings Inc and more

In today’s briefing:

Kokusai Electric (6525 JP): Sell-Off Presents Buying Opportunity
PKSHA Tech (3993 JP) – TOPIX Inclusion in October 2024
CELSYS (3663 JP) Finally Makes It to Prime Time (TOPIX Inclusion Next Month)
ECM Weekly (23rd Sep 2024) – Tokyo Metro, Midea, Intermestic, Sagility, Belstar, Kuaishou, Bajaj HF
Ain Shifts Focus with FrancFranc Acquisition

Kokusai Electric (6525 JP): Sell-Off Presents Buying Opportunity

By Scott Foster

Kokusai has dropped 44% from its July peak, offering a long-term opportunity at reasonably attractive valuations. Management’s guidance looks conservative.
KKR has reduced its stake from 43.4% to 23.2%, increasing the float while indicating that it still sees a long-term opportunity. Applied Materials has bought 14.7% of the company.
The completion of a new factory in Japan should double production capacity to meet demand from makers of AI processors, high-bandwidth memory, 3D NAND and power devices.

PKSHA Tech (3993 JP) – TOPIX Inclusion in October 2024

PKSHA is an AI company. It was before this year, and got a boost this past spring. The stock price rose 60% in two weeks in February and March 2024.
Then it fell more than 50%. Back to late 2023 levels. High growth, growing into its valuations. Now moving to TSE Prime this week, TOPIX next month.
Impact in days of ADV is lower than impact in Real World Float metrics. There are lots of day-traders. This probably has legs.

CELSYS (3663 JP) Finally Makes It to Prime Time (TOPIX Inclusion Next Month)

12 days ago, Janaghan Jeyakumar, CFA published his September version of TOPIX Inclusions: Who Is Ready (September 2024). His chosen name was CELSYS (3663 JP), a long-time TSE-Prime inclusion bet.
This week on the 18th, they announced they were going to enter TSE Prime on 25 September. This was a somewhat well-known known. They were interested and had been.
The stock popped 15% the next day. It’s a small cap, but there is a lot of float.

ECM Weekly (23rd Sep 2024) – Tokyo Metro, Midea, Intermestic, Sagility, Belstar, Kuaishou, Bajaj HF

Aequitas Research’s weekly update on the IPOs, placements, lockup expiry and other ECM linked events that were covered by the team over the past week.
On the IPO front, Midea Group Co Ltd A (000333 CH) and Bajaj Housing Finance (BHF IN) hogged much of the limelight this week as well.
On the placements front, there were a few large US$400m+ placements across the region this week.

Ain Shifts Focus with FrancFranc Acquisition