Japan

In today’s briefing:

Japan Post Bank (7182 JP) Announces Its Re-IPO – Big Offering, Complicated but Big Index Flows
Japan Post Bank Placement – Deal Structure, past Deals, Index, Buyback
Japan Post Bank (7182 JP): BIG Offering Supported by Buybacks & Passive Flow
Japan Post Bank (7182 JP): Japan Post Holdings to Sell Down a Third of Its Stake
Softbank (9984 JP): Focus on Vision Fund II (SVF2) And Masa’s Massive IOUs
Quiddity Leaderboard JPX-Nikkei 400: End-Feb 2023
Descente Puts on Some Pace
More Important to Keep Prime Market Quality High, Not to Give to Listed Companies a Grace Period

Japan Post Bank (7182 JP) Announces Its Re-IPO – Big Offering, Complicated but Big Index Flows

Japan Post Bank (7182 JP) has announced the mooted offering by Japan Post Holdings (6178 JP) whereby they will sell 29% of the bank to go from 89% to 60%.
There are two buybacks – one pre offering and one after – which is an attempt to mitigate impact. This creates interesting but complicated strategy possibilities. Lots of details here.
Big picture, this is a Very Big Offering at ¥1.236trln at today’s close including greenshoe. 80/20 dom/international. A TOUGH sell. 1.089bn shares is 4x current float.

Japan Post Bank Placement – Deal Structure, past Deals, Index, Buyback

Japan Post Holdings (6178 JP) plans to sell around US$9bn worth of Japan Post Bank (7182 JP), trimming its stake by a third.
Initial news of the deal broke last week, and we had a look in, Japan Post Bank Possible Placement – Here We Go Again with the US$9bn Overhang.
In this note, we talk about the deal structure and impact.

Japan Post Bank (7182 JP): BIG Offering Supported by Buybacks & Passive Flow

By Brian Freitas

Japan Post Holdings (6178 JP) is looking to reduce its stake in Japan Post Bank (7182 JP) from 89% to 60%. That is over US$9bn at the last close.
The placement is supported by buybacks (ToSTNeT-3 and on-market) that will absorb some of the offering. Then there is the passive buying that will absorb a third of the offering.
One of the key short-term supports will be the exercise of the over-allotment of the Japan offering. But that will require persuading retail investors to buy into the offering.

Japan Post Bank (7182 JP): Japan Post Holdings to Sell Down a Third of Its Stake

By Arun George

Japan Post Holdings (6178 JP)/JPH has announced the offering of up to 1.1 billion shares in Japan Post Bank (7182 JP)/JPB to reduce its stake from 89.00% to 59.95%.
JPB will carry out a ToSTNeT-3 buyback (maximum of JPY70 billion) and an on-market buyback (maximum of JPY80 billion). JPH can sell additional shares into the ToSTNeT-3 buyback.
For long-term investors, JPB’s forward P/B of 0.47x and yield of 4.41% are attractive to peers. JPB’s current price ratio is undemanding vs TOPIX Banks ETF and JPH.

Softbank (9984 JP): Focus on Vision Fund II (SVF2) And Masa’s Massive IOUs

By Victor Galliano

Vision Fund II private companies accounted for 87% of the fund’s 3QFY22 fair value; versus investment cost, private companies’ downward valuation revisions have been more modest than the public companies
Vision Fund II accounted for 22% of the group’s 3QFY22 equity value of holdings, so any further downward valuation revisions would hurt group NAV and add to Masa’s Softbank liabilities
Softbank currently trades at a 42% discount to its stated NAV; we believe that the stated NAV is likely to be overstated, with private company valuations needing further scrutiny

Quiddity Leaderboard JPX-Nikkei 400: End-Feb 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-February 2023.

Descente Puts on Some Pace

Descente has improved profitability since being taken over by Itochu three years ago but much of the growth has come from overseas.
The Descente brand remains weak in Japan but Itochu has plans to rebuild the eponymous label by splitting it into two while creating several new brands.
The plans should help recover momentum in Japan and drive further expansion in China and even into Europe and the US.

More Important to Keep Prime Market Quality High, Not to Give to Listed Companies a Grace Period

The “transitional measures” were set to expire in 3 years. For companies currently subject to the transitional measures, this will end in March 2025 for companies with March fiscal year-end.
Many companies applying the transitional measures that are currently allowed to list on the Prime Market are expected to move to the Standard Market.
Listed companies should take the opportunity to carefully consider these listing costs and benefits, as higher practices in corporate governance and disclosure will be required in the future.

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Feb 27

Daily Brief Japan: Fujitec Co Ltd and more

In today’s briefing:

Fujitec (6406) EGM – It WAS a Close-Run Thing, Glass Lewis Was the Big Winner, and SCANDAL?

Fujitec (6406) EGM – It WAS a Close-Run Thing, Glass Lewis Was the Big Winner, and SCANDAL?

The Fujitec Co Ltd (6406 JP) EGM where activist Oasis Management wanted to spill the independent board members took place Friday.
Results were mixed, but generally a success for Oasis, with 9 of the 13 votes won. Preliminary analysis of “uncertain voter” split interesting, and “Glass Lewis Effect” stronger than expected.
The real shocker, however, was a footnote at the end of the announcement. This could (and should) have further repercussions.

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Feb 26

Daily Brief Japan: Toshiba Corp, Amvis Holdings Inc, Fujitec Co Ltd, Japan Post Holdings, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

Toshiba (6502) – Funding Unsecured! (This Is Getting To Be a Habit)
Amvis Holdings (7071) – Large-Ish Offering, Large-Ish TOPIX Inclusion
Fujitec (6406 JP): Oasis Scores a Victory in a Tight EGM Vote
ECM Weekly (26th Feb 2023) – Japan Post Bank/Holding, Amvis, Pertamina, Zeekr, Honasa, Fangzhou, TVS
Concrete Measures to Raise ROA Are Needed to Achieve Medium-Term Stock Price Outperformance

Toshiba (6502) – Funding Unsecured! (This Is Getting To Be a Habit)

A Bloomberg article out Friday evening suggests the JIP Consortium funding plan submitted as the final package to Toshiba Corp (6502 JP) is no longer secure.
Apparently Orix Corp (8591 JP), which with ROHM Co Ltd (6963 JP) was planning to invest equity and pref for total ¥300bn, wants to lower its investment to ¥200bn.
Other equity tranche participants apparently want to reduce exposure as well.

Amvis Holdings (7071) – Large-Ish Offering, Large-Ish TOPIX Inclusion

On Monday 20 February, nursing home, nursing and disability care services operator Amvis Holdings Inc (7071 JP) announced it would see a Secondary Offering of 10 million shares.
It also announced that it would move to TSE Prime on 14 March.
This increases Real World Float by quite a bit – about 40% – but it also leads to an end-April TOPIX Inclusion.

Fujitec (6406 JP): Oasis Scores a Victory in a Tight EGM Vote

By Arun George

At the Fujitec Co Ltd (6406 JP) EGM, Oasis successfully secured approval for four out of six candidates for outside directors. The tight vote shows that shareholders desire change.
Oasis fell short of its nominations constituting up to two-thirds of the Board. However, Oasis-aligned directors will represent 67% of outside directors which still can drive meaningful change.
The EGM results will spur optimism that Fujitec can close the performance gap with peers, resulting in a rerating. Fujitec remains attractive on a cash-adjusted P/E basis.

ECM Weekly (26th Feb 2023) – Japan Post Bank/Holding, Amvis, Pertamina, Zeekr, Honasa, Fangzhou, TVS

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, Pertamina Geothermal Energy‘s listing kicked of what is shaping up to be a busy 2023 for ASEAN IPOs
There were a few placements across the region but the biggest news was of Japan Post Bank (7182 JP)‘s planned selldown by Japan Post Holdings (6178 JP)

Concrete Measures to Raise ROA Are Needed to Achieve Medium-Term Stock Price Outperformance

If TSE were to require companies with low P/Bs to disclose improvement measures, more companies are likely to take immediate action to increase shareholder returns.
Reducing equity capital is effective in raising ROE, but simply draining cash accumulated from the past through shareholder returns will not lead to long-term stock price outperformance.
Among the components of ROE, ROA improvement is required rather than immediate increase in financial leverage. Companies should disclose their more detailed plans to increase ROA over the medium term.

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Feb 25

Daily Brief Japan: Goldwin Inc and more

In today’s briefing:

Branded Camping from Goldwin and Snow Peak

Branded Camping from Goldwin and Snow Peak

After decades of industrial, urban focus, city-dwelling Japanese first began a tentative reengagement with nature through hiking two decades ago.
This has evolved into more extended trips that began to include camping and visits to wilder areas.
These excursions are still a bit forbidding for many, so camping and outdoor activities in a park managed by a trusted brand have strong appeal, providing new revenue for brands.

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Feb 24

Daily Brief Japan: Ihara Science, Aeon Co Ltd, Kubota Corp, Look Holdings Incorporated, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

Ihara Science (5999 JP) – Here Comes The Bumpitrage
Aeon Retail: Profits Again After 4 Years
Kubota (6326) | Signs of Stability
Look HD: Imported Fashion on the Up, Achieves Targets Early
Companies with High ROA Have High Potential for Corporate Governance and Further ROA Improvement

Ihara Science (5999 JP) – Here Comes The Bumpitrage

In my first piece, Ihara Science (5999 JP) Sees the Chairman Launch an MBO. I Might Expect Excitement I noted that the price was too low. I expected activist efforts.
The price did not trade below the Tender Offer Price after it opened for trading. That was a sign this wasn’t going to go easy.
This morning I am made aware of a letter from one of the “active if not activist” shareholders saying the price is too low. Hint: It is.

Aeon Retail: Profits Again After 4 Years

Aeon’s main GMS arm, Aeon Retail, is on track to post a net profit in FY2023 after a 4-fold increase in OP in 1H2022.
This is largely thanks to stronger sales and footfall and the success of efficiency measures introduced over the past few years.
The improvements look sustainable and should lead to improved results for Aeon longer-term adding to the already good results from the drugstore, real estate and overseas businesses.

Kubota (6326) | Signs of Stability

By Mark Chadwick

We turn bullish on Kubota. Macro indicators point to stabilization
Management guidance for 2023 surprised the market, but we think it is realistic
We think that quarterly results will be a catalyst to convince investors that profitability is improving

Look HD: Imported Fashion on the Up, Achieves Targets Early

Distributors of overseas fashion have been battered by the collapse of the Yen, forcing higher prices.
Look Holdings has managed to elicit strong growth through this crisis, resulting in a doubling in its share price, and is looking for more brands.
The sharp rebound in both domestic demand for premium fashion and inbound tourism should result in better than expected returns for the importer-distributor.

Companies with High ROA Have High Potential for Corporate Governance and Further ROA Improvement

Except for the fact that companies with higher ROA tended to have higher ratios of independent directors, there were no significant correlations with many board practices.
Companies with high ROA are expected to increase ROA by reducing cross-shareholdings in future, and by improving cash allocation to achieve further growth and shareholder returns on growing cash flow.
Companies with high ROA tend to have a high ratio of foreign shareholders, and these companies’ corporate governance is expected to gradually improve in the future, further increasing ROA.

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Feb 23

Daily Brief Japan: Japan Post Bank and more

In today’s briefing:

Japan Post Holdings To Effectively “Re-IPO” Japan Post Bank (7182 JP)
Japan Post Bank Possible Placement – Here We Go Again with the US$9bn Overhang

Japan Post Holdings To Effectively “Re-IPO” Japan Post Bank (7182 JP)

Overnight a Reuters article suggested Japan Post Holdings (6178 JP) had started talks to sell a near 30%) stake in Japan Post Bank (7182 JP), the first sale since IPO.
A sale is designed with two aims: 1) the TSE requires a 35% tradable share ratio, and 2) JPH is supposed to lower holdings in JPB to <50% by 2025.
This event may include a buyback, and has moving parts, and flows on the back end, but fundamentally a sale would effectively constitute a “re-IPO” of the shares.

Japan Post Bank Possible Placement – Here We Go Again with the US$9bn Overhang

Japan Post Holdings (6178 JP) is looking to trim its stake in Japan Post Bank (7182 JP) by a third, as per Reuters.
The deal would be worth around US$9bn and could come as soon as next month.
In this note, we talk about the news and take an early look at the possible selldown.

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Feb 22

Daily Brief Japan: Amvis Holdings Inc, Torii Pharmaceutical, Japan Tobacco, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

Amvis Holdings Placement – Has Done Exceptionally Well, Now It’s Prime Time
Torii Pharmaceutical (4551 JP): Board Opposes Shareholder Proposal for Appropriation of Surplus
Japan Tobacco (2914) | Time to Work the Balance Sheet
Dissolving the Parent-Subsidiary Listing Is a Powerful Way to Increase Valuations?

Amvis Holdings Placement – Has Done Exceptionally Well, Now It’s Prime Time

Amvis Holdings Inc (7071 JP) (AH)’s founder aims to raise around US$250m via a secondary follow-on offering.
The deal will increase the free-float of the stock and will lead to the stock being transferred to the Prime segment.
In this note, we will talk about the placement and run the deal through our ECM framework.

Torii Pharmaceutical (4551 JP): Board Opposes Shareholder Proposal for Appropriation of Surplus

By Tina Banerjee

LIM Japan Event Master Fund sent a document to Torii Pharmaceutical (4551 JP) requesting the company to distribute 100% of its surplus to shareholders and conduct a drastic share buyback.
LIM is of view that Torii has excess cash balances, which is more than the market cap of the company. Inefficient use of capital has led to low single-digit ROE.
Torii opposes the proposal, as the company thinks it needs adequate cash to pursue business development aka in-licensing of new drugs.

Japan Tobacco (2914) | Time to Work the Balance Sheet

By Mark Chadwick

The balance sheet is in great shape and could fund a much more aggressive growth strategy (or higher shareholder returns)
JT lags peers in the higher growth vape & oral markets. Ploom X needs investment to be a global hit. The balance sheet can easily fund both
Why bullish? The stock is trading cheap and offering a higher yield than its five-year average

Dissolving the Parent-Subsidiary Listing Is a Powerful Way to Increase Valuations?

While this was a major step forward, it did not adequately explain how Fujitsu would invest the cash from the sale of these non-core businesses in its core businesses.
The investment strategy of buying listed subsidiaries with parent-subsidiary listings was shown to be reasonable. The exit risk may be lower when the parent makes the subsidiary a wholly-owned subsidiary.
If valuations are enhanced by expectations of increased corporate value through reviews of the parent’s business portfolio, the dissolution of the parent-subsidiary listing is a powerful way to enhance valuations.

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Feb 21

Daily Brief Japan: Rakuten Inc, Fujitec Co Ltd, Honda Motor Co Ltd (Adr) and more

In today’s briefing:

Rakuten: Bank IPO On the Cusp of Int Rate Cycle, Symphony & Energy to Reduce Scepticism on Mobile
Fujitec EGM Coming 24 Feb – It’s a Close-Run Thing
Honda Motor Co.

Rakuten: Bank IPO On the Cusp of Int Rate Cycle, Symphony & Energy to Reduce Scepticism on Mobile

By Oshadhi Kumarasiri

Rakuten Inc (4755 JP)’s 4Q22 results were not all that great with operating loss exceeding consensus by ¥8.4bn mainly through fair value losses in minority investments.
The domestic e-commerce and fintech businesses did reasonably well with 23.4% and 16.4% YoY OP growth while the mobile business managed to narrow its quarterly loss by ¥8.2bn.
However, we think the main catalysts for shares to rise 12% following earnings are Rakuten Symphony, Rakuten Energy and a possibly attractive valuation for the Rakuten Bank IPO.

Fujitec EGM Coming 24 Feb – It’s a Close-Run Thing

Fujitec management is under the gun. Last week, both major international proxy advisors – ISS and Glass Lewis – generally favoured Oasis’ Spill The Board candidate slates.
Fujitec Co Ltd (6406 JP), of course, had their opinion on the matter (Additional Explanatory Material, Response re ISS, Response re Glass Lewis)
How this breaks is a question. Shareholder structure analysis may take us there, but this could end mixed.

Honda Motor Co.

By Baptista Research

Honda managed to deliver an all-around beat but is operating in a challenging business environment.
In Q3, Honda Motor’s production and unit sales of automobiles decreased due to the impact of the pandemic and semiconductor supply shortages.
In these conditions, Honda made corporate-wide efforts to enhance its profitability structure and achieved an operating margin of 6.3%.

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Feb 20

Daily Brief Japan: Advantest Corp, Fujitec Co Ltd, Toshiba Corp, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

Advantest (6857): Sell into the Rebound
Weekly Deals Digest (19 Feb) – Fujitec, Toyo, AAG Energy, Yashili, Newcrest, Keppel, Pertamina
Toshiba Bear Targets
Expected More Companies to Obtain ISO Certification, Which Would Share Disclosure Information Risk

Advantest (6857): Sell into the Rebound

By Scott Foster

Advantest’s share price has risen by 21.5% since the beginning of January, but sales and profits are peaking and YoY comparisons are becoming increasingly difficult.
Competitor Teradyne’s results and guidance give an indication of potential near-term risk, which could be more than 20%.
Visibility is deteriorating and the longer-term outlook uncertain. We doubt the share price can hold up as profits decline.

Weekly Deals Digest (19 Feb) – Fujitec, Toyo, AAG Energy, Yashili, Newcrest, Keppel, Pertamina

By Arun George

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 – Pertamina Geothermal (0125738D IJ) raised US$597 million by pricing the IPO at the low end of the price range of IDR875-880 per share.
Event-Driven developments – Fujitec Co Ltd (6406 JP), Toyo Construction (1890 JP), Keppel Corp (KEP SP), Aag Energy Holdings (2686 HK), Newcrest Mining (NCM AU), Origin Energy (ORG AU).

Toshiba Bear Targets

By Thomas Schroeder

Toshiba (6502) exhibits clear bear momentum as the MACD turns down from key trend resistance. A sharp draw down will set up a buying opportunity.
Near sell resistance to short lies at 4,450. Bear projection come in at 4,185 but the MACD coil suggests an undershoot toward 4,100.
Macro bet is to buy near spiked lows for a rally to 4,500 and then the bigger 5,000 barrier. Need to see sell volumes deteriorate into weakness.

Expected More Companies to Obtain ISO Certification, Which Would Share Disclosure Information Risk

Since companies are in the process of raising their own human capital efforts, it’s good to use ISO 30414 certification as an opportunity to see how well they are doing.
Many companies may believe that ISO will share the risk of information at the time of disclosure with respect to the accuracy of the disclosed information.
Since perfect information doesn’t seem to be required in the Annual Securities Report for FY3/2023, the information will actually be available for intercompany comparisons starting with that for FY3/2024.

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Feb 19

Daily Brief Japan: Rakuten Inc, Toshiba Corp, Toyota Motor Corp Spon Adr and more

In today’s briefing:

ECM Weekly (19th Feb 2023) – Rakuten Bank, ZJLD, REPT, Link REIT, SoCar, Ryman, Indigo, ESR, Oasis
(Mostly) Asia-Pac Weekly Risk Arb Wrap: Toshiba, Jingnan, Newcrest, Yashili, Sembcorp, O2Micro, AAG
Toyota Motor Corporation: Major Drivers

ECM Weekly (19th Feb 2023) – Rakuten Bank, ZJLD, REPT, Link REIT, SoCar, Ryman, Indigo, ESR, Oasis