Japan

In today’s briefing:

ROE up Modestly, but ROE Plus DOE Is Expected to Reach a Record High This Fiscal Year

ROE up Modestly, but ROE Plus DOE Is Expected to Reach a Record High This Fiscal Year

ROE has not risen at the pace expected, but dividends have begun to increase, and in FY2021 DOE rose to the 3% range for the first time.
While ROE alone will not surpass the record high of FY2017, ROE plus DOE (ROE+DOE) is expected to slightly surpass the record high of FY2017 in FY2022.
Even in FY2021, when DOE increased, Equity Ratio increased (and total assets also increased), so there is still room to increase shareholder returns, given that cash on hand increased.

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Apr 09

Daily Brief Japan: Toyo Construction, Otsuka Holdings, Rakuten Bank and more

In today’s briefing:

(Mostly) Asia-Pac Weekly Risk Arb Wrap: Mincor, Toyo Construction, Pushpay, Breaker Resources
Otsuka Holdings (4578 JP): Strong 2022 Result; 2023 Revenue to Hit Record-High Thanks to Key Drugs
Weekly Deals Digest (09 Apr) – Rakuten Bank, ZJLD, Harita, HKBN, Toyo, Estia, Mincor, Pushpay

(Mostly) Asia-Pac Weekly Risk Arb Wrap: Mincor, Toyo Construction, Pushpay, Breaker Resources

By David Blennerhassett

There are 45 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
One new deal was discussed on Smartkarma this past week: Breaker Resources Nl (BRB AU) all-scrip Offer from Ramelius Resources (RMS AU).
Key updates took place for Mincor Resources NL (MCR AU), Toyo Construction (1890 JP), and Pushpay Holdings (PPH NZ).

Otsuka Holdings (4578 JP): Strong 2022 Result; 2023 Revenue to Hit Record-High Thanks to Key Drugs

By Tina Banerjee

Otsuka Holdings (4578 JP) reported better-than-expected 2022 result. Revenue increased 16% to ¥1,738B and business profit grew 11% to ¥175B, driven by the four global products and the nutraceutical segment.
Revenue from four global products surged 26% to ¥619B, representing 54% of pharmaceutical revenue. Otsuka expects the momentum to continue and these products to record revenue of ¥637B in 2023.
For 2023, Otsuka has guided for record-high revenue and net profit of ¥1,800B (+4% YoY) and 158B (+18% YoY), respectively, driven by increased revenue from growth businesses.

Weekly Deals Digest (09 Apr) – Rakuten Bank, ZJLD, Harita, HKBN, Toyo, Estia, Mincor, Pushpay

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 – Rakuten Bank (5838 JP), ZJLD Group (ZJLD HK), PT Trimegah Bangun Persada Tbk (Harita Nickel) (2230010D IJ) and Merdeka Battery Materials (2012725D IJ) IPOs.
Event-Driven developments – Golden Energy & Resources (GER SP), Toyo Construction (1890 JP), Estia Health (EHE AU), Genesis Minerals (GMD AU), Mincor Resources NL (MCR AU), Pushpay Holdings (PPH NZ).

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Apr 08

Daily Brief Japan: Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

Changing Japanese Companies Is Not TSE Request but Inflation that Changes Mindset of All Managers

Changing Japanese Companies Is Not TSE Request but Inflation that Changes Mindset of All Managers

For Japanese companies that take time to take action while watching their surroundings, it’s skeptical of the expectation that individual managers will initiate measures in response to a “TSE request.
The shift from deflation to inflation won’t only affect company’s profit structure and balance-sheet, but will also force Japanese companies to change as it resets the mindset of all managers.
Since there’s little economic rationale for holding cash under inflation, all companies, rather than individual management decisions, will be forced to use cash for investment in growth and shareholder returns.

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Apr 07

Daily Brief Japan: Rakuten Bank, HS Holdings and more

In today’s briefing:

Rakuten Bank (5838) IPO – New Price Is One To Take (Part 1)
Khan Bank IPO Is Here – At IPO Price, the Stake Is Worth More than HS Holdings’ Share Price
Rakuten Bank IPO Valuation: A Deep Value Play in Japanese Banking

Rakuten Bank (5838) IPO – New Price Is One To Take (Part 1)

Rakuten Bank (5838 JP) has priced at a new range of ¥1,300-1,400/share, down from ¥1,630-1,930/share. That lowers TTM PER and PBR to well below where SBI Sumishin was priced.
This will now be universally recognised by pre-IPO analysts as a raging buy. Even at the top end. Important considerations: Rakuten parent TAM, growth, index inclusions, etc.
There are OTHER important considerations going forward which show themselves in the documents.

Khan Bank IPO Is Here – At IPO Price, the Stake Is Worth More than HS Holdings’ Share Price

Today, it was announced that HS Holdings (8699 JP) subsidiary Khan Bank LLC – Mongolia’s largest bank – would IPO this month.
This is a big deal. The IPO is for 10% of the bank (US$521mm equivalent). Priced at 4x Dec 2022 earnings for a bank which has ~ 25% ROE.
There is a reason to expect substantial realisation of this value within 2023 due to a section of Feb 2021 Amended Mongolian Banking Law. Plus there is boatloads of cash.

Rakuten Bank IPO Valuation: A Deep Value Play in Japanese Banking

By Oshadhi Kumarasiri

Rakuten Bank announced its IPO price range at ¥1,300-1,400 per share, which is 20-29% lower than the initially indicated price range at the time of filling of the IPO prospectus.
The new price puts Rakuten Bank (5838 JP) on 4.9-5.3x FY+2 PE, which is the lowest in Japan’s banking sector.
Japanese banks usually trade at a price-to-book of 0.2x per 1% ROE. This indicates that Rakuten Bank, which is priced at 1.0-1.1x, may deserve a fair price-to-book of over 2.0x.

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Apr 06

Daily Brief Japan: Rakuten Bank, Toyo Construction, Kawasaki Kisen Kaisha, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

Rakuten Bank IPO: New Price Range Is a Steal
Rakuten Bank IPO – Lower Range Makes It Even More Attractive
Toyo Construction FY23 Profit Forecast – 105% Payout = 6.5%, Lots of Shares Changing Hands
MSCI Japan May QCIR: Couple of Potential Changes
Toyo Construction (1890 JP): YFO Loses Ground to the Board’s New Five-Year Plan
Can Many Companies that over Years Could Not Suddenly Transform Themselves Thanks to TSE Requests?

Rakuten Bank IPO: New Price Range Is a Steal

Rakuten Bank (5838 JP) has set its IPO price at JPY1,300-1,400 per share which is 20%-29% lower than the IPO reference price range of JPY1,630-1,960 per share.
We previously discussed the IPO in Rakuten Bank IPO: The Investment Case, Rakuten Bank Vs SBI Sumishin Net Bank and Rakuten Bank IPO: Valuation Insights.
The new price range values Rakuten Bank at a discount vs peers for the ROE it delivers. SBI Sumishin Net Bank (7163 JP) strong post-IPO performance suggests strong sector sentiment.

Rakuten Bank IPO – Lower Range Makes It Even More Attractive

By Sumeet Singh

Rakuten Bank (5838 JP), the online banking arm of Rakuten (4755 JP), aims to raise up to around US$630m in its Japan listing in April 2023.
RB is the largest internet bank in Japan, by number of accounts. As of Dec 22, it had 13.3m deposit accounts with a total deposit base of JPY8.8tn.
In our earlier notes, we have looked at the company’s past performance and undertook a peer comparison. In this note, we talk about valuations in the IPO price range.

Toyo Construction FY23 Profit Forecast – 105% Payout = 6.5%, Lots of Shares Changing Hands

Two weeks ago, Toyo Construction (1890 JP) released a new Mid-Term Management Plan with a new investment plan, and a new capital plan (100% payout, ¥50/share minimum div til Mar-2026).
Obvious goal: get the stock above ¥1,000/share so YFO’s ¥1,000 bid looks unattractive. Then they attacked on a FEFTA basis, saying YFO’s foreign entities need permission to go over 10%.
Now Toyo has released a March 2024 forecast, with a ¥63/share dividend and 105% guided payout. The stock popped. LOTS of shares trading. Now only up small.

MSCI Japan May QCIR: Couple of Potential Changes

By Brian Freitas

Based on the last close, we expect Kawasaki Kisen Kaisha (9107 JP) to replace Nihon M&A Center (2127 JP) in the MSCI Japan Index at the May QCIR.
Passive trackers will need to buy less than 1x ADV on Kawasaki Kisen Kaisha (9107 JP) while selling over 5x ADV on Nihon M&A Center (2127 JP).
Kawasaki Kisen Kaisha (9107 JP) trades cheaper than its closest peers and there are some interesting market neutral trades there.

Toyo Construction (1890 JP): YFO Loses Ground to the Board’s New Five-Year Plan

The Toyo Construction (1890 JP) Board has tried every tactic to delay YFO’s JPY1,000 tender offer. The Board’s new five-year medium-term management plan tilts the fight in its favour.
The Board’s new management plan, particularly the dividend payout, now provides shareholders with a credible alternative to accepting YFOs’ tender offer. The payout ratio for FY23-FY25 is set at 100%.
YFO’s primary tactic is to replace the Board at the June AGM, but shareholders have less reason to support it. Improving sentiment and the offer continue to underpin the shares.

Can Many Companies that over Years Could Not Suddenly Transform Themselves Thanks to TSE Requests?

Not because TSE requires it, but because management should provide shareholders with a concrete plan and outlook for cash allocation based on the company’s growth stage and the external environment.
For companies that disclosed improvement measures before TSE requested them and saw their stock price rise significantly, the sustainability of the stock price depends on the feasibility of the plan.
The stock market jumped the gun and rallied in anticipation of the company’s announcement of feasible plan as expected, even though the company has yet to disclose any improvement plan.

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Apr 05

Daily Brief Japan: Rakuten Bank and more

In today’s briefing:

Rakuten Bank IPO: Leveraging the Power of the Rakuten Ecosystem to Lead Japan’s Digital Banking

Rakuten Bank IPO: Leveraging the Power of the Rakuten Ecosystem to Lead Japan’s Digital Banking

By Oshadhi Kumarasiri

Rakuten Bank (5838 JP) has an advantage over competitors due to its connection with the Rakuten ecosystem, which has 39+ million monthly active users.
It’s NIM has decreased, but the cost-to-income ratio is the lowest among digital banks, and its net-fee and commission-income has grown significantly, thanks to its association with the Rakuten ecosystem.
The IPO price range is reasonable given its advantageous position. Therefore we intend to subscribe to the IPO when it opens.

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Apr 04

Daily Brief Japan: Visional, Santen Pharmaceutical, Tokyo Stock Exchange Tokyo Price Index Topix and more

By Shifara Samsudeen, ACMA, CGMA

In today’s briefing:

HRTech Sector Series: Market Continues to Evolve While Post Covid Growth Begins to Slow Down
Santen Pharmaceutical (4536 JP): Profit to Improve This Year; China Reopening, New Products Hold Key
Shouldn’t Shareholders Raise Voice for a Company that Is Building up Cash While Its ROE Is Sluggish?

HRTech Sector Series: Market Continues to Evolve While Post Covid Growth Begins to Slow Down

This is the Fourth and Final of the HRTech Sector series and we will be discussing Ceridian, ADP, Recruit and Visional performance over the last quarter.
The remarkable growth spurt experienced post-Covid seems to be slowing down and margins and revenues have mostly returned to pre-COVID levels.
With digitisation of workplace, the market is expected to see further advancement in categories such as employee experience, talent intelligence, contract workforce management, etc.

Santen Pharmaceutical (4536 JP): Profit to Improve This Year; China Reopening, New Products Hold Key

By Tina Banerjee

Santen Pharmaceutical (4536 JP) is not seeing any change in competitive landscape of its key drug, Eylea, which contributes 27% of total revenue. No immediate biosimilar launch is expected.
Approval of bioidentical authorized generic version of Eylea in Japan, label expansion, and potential launch of high dose of the same drug will enable to combat with upcoming biosimilar competition.
Santen expects China market to revive in FY24. Additionally new products launch and widening geographic presence to drive mid-to-long-term growth of the company.

Shouldn’t Shareholders Raise Voice for a Company that Is Building up Cash While Its ROE Is Sluggish?

Even though OP Margin has been stagnant, NP Margin has improved due to the corporate tax rate cut, and the increased free cash flow has been less directed to investments.
The fact that OP Margin didn’t rise much while personnel and R&D costs were curbed and there wasn’t much investment simply implies a lower gross margin in the core business.
With ROE growth sluggish and cash accumulating, it’s reasonable that investors demand further shareholder returns. If asset turnover declines while OP Margin slows, there’s little reason to hold cross-held shares.

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Apr 03

Daily Brief Japan: Toshiba Corp, Socionext and more

In today’s briefing:

Merger Arb Mondays (03 Apr) – Toshiba, Toyo, AAG, Origin, United Malt, Liontown, Mincor, Healius
Socionext Lock-Up – Up 2.67x Since IPO. US$930m Worth of Shares to Be Unlocked

Merger Arb Mondays (03 Apr) – Toshiba, Toyo, AAG, Origin, United Malt, Liontown, Mincor, Healius

We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
Highest spreads – 111 Inc (YI US), Alliance Aviation Services (AQZ AU), Genesis Minerals (GMD AU), Estia Health (EHE AU), Tyro Payments (TYR AU), Aag Energy Holdings (2686 HK), Toyo.
Lowest spreads Healius (HLS AU), Liontown Resources (LTR AU), Golden Energy & Resources (GER SP), Mincor Resources NL (MCR AU), GK Goh Holdings (GKG SP), SHL Japan Ltd (4327 JP).

Socionext Lock-Up – Up 2.67x Since IPO. US$930m Worth of Shares to Be Unlocked

By Clarence Chu

Socionext (6526 JP) was listed on 12th Oct 2022, when it raised US$457m in its upsized Japan IPO. Its six-month lockup will expire on 9th Apr 2023.
Socionext is a fabless semiconductor provider which commenced operations after integrating the system on a chip (SoC) businesses of Fujitsu Semiconductor Limited and Panasonic Holding Corporation in 2015.
Coming up for six-month lockup expiry are the Development Bank of Japan, Fujitsu and Panasonic, the trio had each trimmed their respective stakes in the IPO.

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Apr 02

Daily Brief Japan: Rakuten Bank, Lasertec Corp, Tokyo Stock Exchange Tokyo Price Index Topix, Toshiba Corp and more

In today’s briefing:

Rakuten Bank IPO: Valuation Insights
Index Rebalance & ETF Flow Recap: Nikkei225, KOSDAQ150, KT Corp
Japanese Managers Have Always Wanted to Distance Themselves from Market Pressures
(Mostly) Asia-Pac Weekly Risk Arb Wrap: Liontown, United Malt, Estia, Mincor, Origin, Toyo, Toshiba

Rakuten Bank IPO: Valuation Insights

Rakuten Bank (5838 JP) is an online bank in Japan. It is looking to raise up to $878m. Pricing is on 5 April and the listing is on 21 April.
We previously discussed the IPO in Rakuten Bank IPO: The Investment Case and Rakuten Bank Vs SBI Sumishin Net Bank.
In this note, we discuss valuation. Our analysis suggests that Rakuten Bank is fairly valued at the IPO price range of JPY1,630-1,960 per share. We would participate in the IPO.

Index Rebalance & ETF Flow Recap: Nikkei225, KOSDAQ150, KT Corp

By Brian Freitas

The March rebalances of the NIFTY indices and the Nikkei 225 (NKY INDEX) were implemented last week. Plus some ad hoc rebalances for the KOSPI2 INDEX and KOSDQ150 INDEX.
A quieter week coming up with multiple market holidays across markets. We also near the start of the review period for the MSCI May QCIR.
There were inflows to Tracker Fund of Hong Kong Ltd (2800 HK) and iShares FTSE/Xinhua A50 China (2823 HK) during the week while there were outflows from some Korea ETFs.

Japanese Managers Have Always Wanted to Distance Themselves from Market Pressures

It’s skeptical that managers before the bubble economy really took risks. They no longer are protected by regulations as they were before, and must take risks on their own initiative.
The Stewardship Code and Corporate Governance Code were introduced in the hope that they would provide a boost to standstill managers to improve profitability to increase corporate value.
Exit from the market is an important factor, but it can decelerate the speed at which exits are facilitated, such as maintaining listing through transitional measures or changing TOB rules.

(Mostly) Asia-Pac Weekly Risk Arb Wrap: Liontown, United Malt, Estia, Mincor, Origin, Toyo, Toshiba

By David Blennerhassett

There are 44 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
Three new deal was discussed on Smartkarma this past week: Albemarle (ALB US)‘s Liontown Resources (LTR AU) tilt; Malteries Soufflet’s United Malt (UMG AU) Offer; Bain Capital’s Estia (EHE AU) Offer.
Key updates took place for Aag Energy Holdings (2686 HK), Toyo Construction (1890 JP), Toshiba Corp (6502 JP), andGolden Energy & Resources (GER SP).

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Mar 31

Daily Brief Japan: Toshiba Corp, Japan Airlines, Rakuten Bank, Jeol Ltd, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

Toshiba – 3D Stake Reduction Reduces and Increases Risk
Nikkei 225 March 2023 Rebal Tomorrow
Rakuten Bank IPO – Thoughts on Valuation
Quiddity Leaderboard JPX-Nikkei 400: End-Mar 2023
Risk Taking by Managers Is Key, Weather Changing the Game or Creating a New Business

Toshiba – 3D Stake Reduction Reduces and Increases Risk

By Mio Kato

An EDINET filing yesterday revealed that 3D Investment Partners had reduced their stake in Toshiba from 7.2% to 4.9%.
This significantly derisks the possibility of 3D becoming a forced seller and alters the risk reward here.
Nevertheless, it is still difficult to be especially bullish here given uncertainty regarding the tender vote is now a little higher.

Nikkei 225 March 2023 Rebal Tomorrow

The Nikkei 225 March 2023 Rebalance is 31 March at the close. There is about US$1.75bn of funding to sell against US$1.85bn of 3 names to buy.
The impact on the Buy Side is middling at 3, 6.4, and 6.9 days of ADV to buy. The three DELETES are larger on average but they are all smallcaps.
One trade – long an ADD vs a Peer – is still worth doing. Indexers buy the stock, it goes into a dark closet, and never comes out.

Rakuten Bank IPO – Thoughts on Valuation

By Sumeet Singh

Rakuten Bank (5838 JP), the online banking arm of Rakuten (4755 JP), aims to raise up to around US$900m in its Japan listing in April 2023.
RB is the largest internet bank in Japan, by number of accounts. As of Dec 22, it had 13.3m deposit accounts with a total deposit base of JPY8.8tn.
In our earlier notes, we have looked at the company’s past performance and undertook a peer comparison. In this note, we provide our thoughts on valuation.

Quiddity Leaderboard JPX-Nikkei 400: End-Mar 2023

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 2023 based on trading data as of end-March 2023.

Risk Taking by Managers Is Key, Weather Changing the Game or Creating a New Business