Japan

• In Oct2023, activist Palliser Capital launched a campaign on well-known “stub trade” Keisei Electric Railway Co (9009 JP) (1.6% stake). The proposal? Monetise OLC, invest for growth, be shareholder friendly.
• Keisei responded 3+mos ago: buyback and 1% OLC stake sale but said OLC would remain an equity affiliate. Palliser re-engaged in late April (Japanese/English and two AGM agenda items). Keisei objected.
• Palliser made their case, Glass Lewis and ISS support Palliser. Palliser likely cannot win. The goal here isn’t to win though. It is to get enough to raise management consciousness. 

• Today after the close, SBI Holdings (8473 JP) – which currently owns 32.4% of Medical Data Vision (3902 JP) – announced it would buy another 1.91mm shares over 7mos.
• This market purchase would lift them to ~37.4% by year-end. Interestingly, they plan to go through the one-third level without a Tender Offer. But their buying history hasn’t been great. 
• SBI bought 20% in 2020. It fell by half. They bought another 5%. Then it dropped 50%, so they bought another 5%. Now -25% so they are buying another 5%.

• In February, Aozora Bank Ltd (8304 JP) extended its writedowns and the shares fell sharply. By end-Feb, we found out Japanese activist Murakami-san had bought shares. 
• I didn’t see the endgame. The pump worked, but he didn’t dump. Then Aozora got Daiwa to be a lead investor through a 3rd party share allotment, diluting Murakami-san.
• Last week we got news the FSA had approved the Daiwa transaction. Yesterday, we got news the Murakami Group would sell its whole stake to Daiwa. 

• Fast Retailing is due to report Q3 results on 11 July. We update our views on the outlook for the stock heading into the announcement.
• Uniqlo Japan has already released monthly sales data for the March to May quarter. Performance in May was again strong, slightly surpassing our estimates
• We maintain our full year earnings estimates. The stock has declined by around 6% since Q2 results, but remains fully valued.

• Rakuten Bank, in its present form, is positioned to benefit from rising interest rates in Japan, with its low LDR, high cash balances, growing loan book and healthy capital ratio
• The proposed FinTech reorganization of the group around the bank should drive further potential shareholder benefits; higher ROE, lower customer acquisition costs, increased active account penetration and lower operating costs
• We believe that there will be effective governance checks and balances in place to ensure fair valuations of the FinTech segments pre-reorganization; we include our base valuations in this report

• Toyota Group and non-life insurances, which recently announced reductions in their policy shareholdings, are well-known for their large holdings, but a look at total asset ratios reveals a different aspect.
• Companies with high policy shareholdings relative to total assets have lower ROE and ROA as well as foreign ownership, market capitalization, and valuations.
• These companies with inconspicuously held policy shares are reluctant to take corporate governance initiatives and face many challenges in both board practices and key actions.

• M&A is now a core strategy for expansion among lifestyle retailers as depopulation shrinks the overall market. 
• Adastria is leading this trend, acquiring several businesses in the past year, and will now add variety stores from Welcome, the operator of Dean & Deluca, and a restaurant chain.
• It is also developing new product lines in categories as diverse as sexual wellbeing and home decor, all part of wider plans to become Japan’s “biggest general lifestyle retailer”.

• Sun Corp (6736 JP) for years has been a play on its investment holding in Cellebrite DI (CLBT US), brought to market in a $2.4bn SPAC deal announced 30Aug2021.  
• The SPAC entity was an entity called TWC Tech Holdings II Corp (TWC = “True Wind Capital”). The next day, Cellebrite DI (CLBT US) was born, trading up to US$11.00+.
• Sun Corp (6736 JP)‘s value realisation path had begun. Today, a True Winds entity announced a Partial Tender Offer – unsolicited, unannounced previously – on Sun Corp, for 19.0%.

• True Wind has launched a hostile partial tender offer for Sun Corp (6736 JP) for a minimum (3.8m) and maximum (4.2m) shares at JPY4,400, 19.2% premium to the undisturbed price.
• The offer was prompted by frustration with the Board’s lack of urgency in closing the disparity between Sun Corp’s market cap and the value of its Cellebrite DI (CLBT US) stake.
• The Board has three options: do nothing (low probability), find a white knight bidder (high probability), or commit to selling/distributing its Cellebrite stake (medium probability).

• While Marui’s credit card business now has in excess of ¥4 trillion in GTVs, its shopping buildings are also doing outperforming the mall sector.
• Sales for all 22 buildings rose 14.5% last year but as much as 24% at some buildings.
• This is the result of new tenants, more services and better marketing based on vast in-house data sources. This data-mining capability will get better and is unique to Marui.

• AViC upwardly revised its full-year FY24/9 earnings forecast at the time of its 1H earnings announcement, demonstrating renewed and accelerated growth after recovering from the temporary slowdown in growth caused by business conditions and funding difficulties among startups and other emerging companies in FY23/9.
• While many of its competitors are showing sluggish business performance, the Company has been able to pursue growth on its own by committing to improving both client advertising efficiency and in-house productivity through meticulous and data-driven business operations as well as executing its fast-paced Plan-Do-Check-Act (PDCA) cycle.
• Meanwhile, its share price has not risen in line with the boost in EPS, with the latest P/E ratio hovering around 20x based on the revised earnings forecast.

• Japanese semiconductor equipment stocks have started to drop back, but device maker Rohm is already down 25% year-to-date and down 43% from its 52-week high. 
• Rohm’s operating profit fell 53% last fiscal year and management is guiding for a 68% decline in in FY Mar-25. Investment in power devices remains strong despite weak sales.
• 1H guidance is for an 80% year-on-year decline in operating profit on a 6% decline in sales. Buy into this weakness. Recovery should start in 2H.

• The “30% female board member goal” appears to be more about matching numbers with results rather than discussing the positive impact of diversity on the board.
• Over the past year, corporate governance improved only modestly for all listed companies, but few that improved their corporate governance raised the percentages of female board members and independent directors.
• Given the strong influence between improvements in governance and return on capital and foreign ownership, it’s difficult for a company to transform itself without the reach of overseas investor engagement.

• 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: MMG (1208 HK) US$1.2 billion rights issue. Shift Up (462870 KS) seeks to raise up to US$320 million.
• Event-Driven developments: Asia Cement China (743 HK), CPMC Holdings (906 HK), Chilled & Frozen Logistics Holdings (9099 JP),  Nagatanien Holdings (2899 JP), Teijin Ltd (3401 JP), Altium Ltd (ALU AU). 

• KANTSU Co., Ltd. (hereafter, “Kantsu”) is a warehouse logistics specialist providing comprehensive logistics services, including warehousing, inventory management, and delivery of products sold by e-commerce (EC) and catalog businesses, handling approximately 12 million shipments per year.
• The Company has also created a highly profitable business by selling its in-house developed IT systems that streamline operations to external customers.
• In terms of sales and profits, the Company’s two main drivers are its Logistics Services Business and IT Automation Business.

• Article discusses anchoring and insufficient adjustment in behavioral finance using Long Kansai Paint as an example
• Despite profits increasing, stock price remains low leading to valuation at an 8-year low
• Comparisons to global paint industry benchmarks show potential for KP to improve performance and valuation

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

• Even with the 9% increase in share repurchases, the high level of cash on hand will likely be further built up, given the increase in cash flow.
• Companies that have increased their valuations over the past year have further increased their valuations by growing their traditionally high valuations and ROE and ROA.
• Cash allocation is a major challenge for all companies. Many companies have a payout ratio of 30%, and they have too much cash on hand relative to sales.

• Elliott Management has emerged as a 2%+ shareholder in SoftBank group and is driving for share buybacks of upto USD15bn; we see this as a game changer for minority shareholders
• Recent moves to enhance corporate governance in Japan have taken root, yet we see Softbank group as a laggard on corporate governance which been targeted by an experienced activist
• Softbank shares trade at a 54% discount to the estimated NAV; an activist like Elliott on board could meaningfully drive shareholder value creation and a narrowing of the NAV discount

• Last September, Toyota Motor (7203 JP) Group affiliate Aisin (7259 JP) said they would get rid of ALL their cross-holdings. That signalled a future sea change in Toyota intra-group relations.
• It meant all Toyota group companies could do that. The big moves started with a multi-party offering of Denso Corp (6902 JP) shares – Toyota, Toyota Industries, and Aisin sold.
• Then others. Then in March, Denso announced a 2.5yr selldown of ~¥460bn of Toyota Industries shares. That meant a TI buyback was likely. We got one. Now we have details.

• Activist short seller Scorpion alleges Lasertec is a “colossal fraud” and “ticking time bomb”
• Most of their allegations relate to problems with Lasertec’s EUV mask inspection tools
• Lasertec achieved Intel’s distinguished supplier ward for the past six years and last December landed an award from TSMC for  “Distinguished EUV Mask Inspection and Metrology Collaboration”. What gives?

• 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.
• There have been no TOPIX Inclusions in 2024 so far although dozens of companies have been able to meet the key Section Transfer requirements on paper for several months.
• However, there are some pre-event candidates we believe are worth monitoring as they have previously confirmed their desire to move to the Prime Market.

• After a strong 68% increase in share price in 2023, Saizeriya (7581 JP) has been trading range bound, and up 8% year-to-date in 2024. 
• Continued weakness in Japan on the profitability front in 1HFY24 offset continued strong performance in China.
• Japan’s operating profit is set to improve in the second half of the current fiscal year (ending August), and China’s strength will continue on the back of accelerating store openings. 

• Earnings rebound for FY3/25 – Q1-4 FY3/24 results missed guidance, with underperformance experienced in the Overseas and Marketing SaaS businesses.
• The core domestic Ad Platform business maintained a stable growth profile with its competitive technology and market position, and we believe will continue to act as the core earnings driver for the medium term.
• FY3/25 guidance points to a recovery profile YoY with high double-digit sales and earnings growth, with sustained growth in the domestic online ad market, customer acquisition in Marketing SaaS, and a recovery in the Overseas business through a combination of cross-selling activities and cost reductions.

• Food Group driving earnings – Q1-4 FY3/24 results were ahead of revised guidance for earnings, driven by solid growth at the Food Group with ‘Mister Donut’ chain restaurant experiencing increasing footfall and price hikes YoY.
• Profits were also boosted by lower- than-planned investment costs at the Direct Selling Group (due in part to delays), although this highlights the challenges of raising sales volume in this mature business.
• With the RFID investment project mostly complete, the company is in a position to benefit from cost savings YoY. 

• Following up on our earlier cross-shareholding notes, in this note we look at Sumitomo Mitsui Financial Group (8316 JP) cross-shareholding.
• SMFG had a stake over US$100m in at least 47 listed Japanese stocks, amounting to a total of around US$17bn.
• In this note, we take a look at its stakes in various companies to see which ones could possibly be candidates for further selldowns.

• Sakura internet (3778 JP) is looking to raise US$127m from its primary follow-on. Proceeds will be used towards purchasing GPU servers, and constructing new data center facilities.
• While 11% of total shares outstanding are offered here, the deal would be easily digested by the market, representing just 0.8 days of its three month ADV.
• In this note, we run the deal through our ECM framework and comment on deal dynamics.

• Today, Maxell Ltd (6810 JP) announced its new MTMP “MEX26 – Commit to Value (CorporateValue,ProfitGrowth)” with lots of consultant-speak and corporate homily.
• But they present a capital investment plan, and a capital return plan. These may interest investors. The buyback is the same size as 2019 and 2022. They popped and faded.
• Todays tidbits were all announced during the lunch break today, and the stock popped 6% in the PM session on the news.

• Lasertec shares dropped nearly 8% following a scathing 53-page report by Scorpion Capital, accusing management of “colossal fraud.” 
• The SC report is shrill, in our view, and therefore, we think we add value by contributing a second opinion. 
• In our view, Lasertec is due for a correction even if SC’s report is inundated by hyperbole.

• Companies in the 0% to 8% ROE group have low stock valuations and are in trouble because they are unable to step into value-creating management.
• Companies in this group, which includes many prime market listed companies, have done what is required by Corporate Governance Code, but could not take action to increase their ROE.
• The lack of significant differences in corporate governance practices for group with ROEs above 10% is due to foreign ownership not being significantly differentiated from other groups.

• Registering record sales and earnings – Q1 FY12/24 results recorded the highest quarterly operating profit to date, demonstrating a brisk start to the FY.
• The core earnings driver was Wealth Consulting, chiefly in Business Succession which closed a large M&A transaction.
• The Real Estate Solutions business also saw strong sales growth (+24.2% YoY), driven by rental income and other real estate transactions, while the core ADVANTAGE CLUB (real estate fractional ownership product) saw flat sales YoY.

• When this deal was announced, it was light. But the timing, JSR influence, large-ish float, ensured FUD would make this trade wide. It traded wider.
• Nearly 5mos ago, Shinko had much-underperformed peer Ibiden, meaning downside gap risk from undisturbed was negative as spreads were wide. I reco’d a buy. Then 12wks ago, recommended taking profits.
• Shinko had outperformed Ibiden, gross spreads had narrowed 5+% on JSR approval. Spreads are now 2.6% wider than at narrowest. In May, gap risk narrowed as Shinko underperformed Ibiden.

• Tosei achieved record revenue and profit, driven by robust growth in its fund management business and a balanced portfolio of stable and sales-driven operations.
• Activist investor Dalton acquired a 5.02% stake, highlighting concerns over recent governance decisions and potential Board independence dilution due to the Nagoya Railroad alliance.
• Dalton’s involvement ensures heightened scrutiny, promising better governance, and potentially favorable outcomes for minority shareholders amid Tosei’s continued strong business performance.

• Results underline high earnings visibility in Profit-Generating Funeral Services – Q1-4 FY3/24 results were in line with guidance, with positive high growth momentum being sustained at Profit- Generating Funeral Services.
• The legacy businesses (Information and HR) missed forecasts, highlighting turnaround challenges.
• However, the new business Asset Consulting has started strongly as a high-margin activity, and the outlook is positive. 

• In mid-January 2024, the TSE announced a “name-and-shame” list where they listed all the companies which had put forth a disclosure about 【資本コストや株価を意識した経営の実現に向けた対応】. But they did not actually shame.
• The TSE list shows which companies have disclosed a policy/consideration. But no data/links. We are weeks ahead of the TSE and we have all the links (and the shame list).
• We created a tool to name everyone, show their reports, provide links to every document, and now a new tool. Put in a name, see the difference between the Old/New Reports.

• Nagatanien Holdings (2899 JP) recommended a Marunouchi Capital-sponsored MBO at JPY3,100, a 38.4% premium to the undisturbed price. 
• The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The offer period is from 4 June to 16 July.
• While not a knockout bid, the offer represents a five-year high and requires a 58% minority acceptance rate. This is a done deal with payment commencing from 23 July.  

• MitCorp – the largest shareholder – and the Nagatani family – today announced an MBO where they will buy a classic ubiquitous brand at an Adjusted EV of 5.4x EBITDA.
• The equity check appears to buy at ~2.5x Mar27-29 average FCF but they probably have 50% of the shares in the bag. Retail, or who they sell to, matter.
• There is room for a noisy activist to get involved here and disrupt the retail ownership. But there are very few of those around. And none in it now.

• Since companies with higher foreign ownership have better profitability and corporate governance practices, it can be inferred that the overseas investor engagement has improved the company’s profitability and corporate governance.
• If the company’s management has changed to value-creating management through the overseas investor’s engagement, the company isn’t expected to change to value-creating management in just one year after “TSE’s request”.
• Many companies that do not receive overseas investor engagement have more room for improvement in aspects of management strategy execution and will be evaluated over time for improvements in profitability.

• Numerical targets for FY24/12 initial guidance are shown in the exhibit below.
• Despite initial guidance for consolidated OP of ¥800mn, an increase of ¥420mn (+110.3% YoY), the Company cites conservatively forecasting non-operating and extraordinary items such as interest expenses, restructuring costs, and exchange rate fluctuations for initial guidance for ordinary profit break-even and a net loss of (¥600mn) for profit attributable to owners of parent (see P2).
• Key initiatives and expectations for 2024 include: 1) in Japan, aim to provide more data-oriented and efficient services (online golf equipment sales GPM improving after 4Q inventory adjustment), 2) GOLFTEC golf lesson cash sales set to improve on coach issue addressed and marketing campaigns such as “7 shots better,” and 3) expand SkyTrak sales distribution channels. 

• Blackstone (BX US) is widely reported to have agreed to acquire Teijin Ltd (3401 JP)’s 55% stake in Infocom Corp (4348 JP) at a valuation of JPY260 billion. 
• If the valuation refers to market cap and Teijin shares its tax benefits, Teijin’s sale proceeds are around JPY128 billion, which is 42% of its market cap.
• However, since 9 May, Teijin shares have been flat vs. Infocom shares are up 63%. Teijin’s medium-term plan suggests that the Infocom proceeds could result in substantial share buybacks.

• Companies with larger market capitalizations tend to have higher profitability and valuations, and those companies have higher foreign ownership.
• Given that board practices improved and that valuations, highly correlated with foreign ownership, are higher for companies with larger market capitalizations, this can be due to engagement of overseas investors.
• If this hypothesis is correct, the gap between the top and bottom market capitalization companies will widen further as it takes a certain time for engagement to pay off.

• Aisin is already achieving strong growth, across many markets, and this should continue with more sales into EV and HEV markets
• Financial strength is improving, with gearing moving lower, and debt/ebitda moving lower
• Balance sheet clean up can lead to some volatility, but overall a general positive, as is the focus on capital management

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• On the IPO front, we undertook a peer comparison and looked at valuations for Shift Up (462870 KS). 
• On the placement front, it was another busy week with a number of blocks in India along with Asmedia Technology (5269 TT)‘s GDR offering and Exedy Corp (7278 JP).