Japan

• Mori Trust Sogo Reit (8961 JP) and Mori Trust Hotel Reit (3478 JP) will merge at the end of this month. 
• They pay divs, there is a unit split, then NEWCO. 
• If you are in the biz and you care, there is a small index thing to do.

• The number of shareholder proposals in June 2022 was 241, significant increase from 136 in June 2021. It’s expected that the number of shareholder proposals will increase again this year.
• The increase in the percentage of shareholder proposals recommended by voting advisors can be considered an increase in shareholder proposals that are quite reasonable from the shareholder’s point of view.
• The percentage of overseas investors in favor of shareholder proposals increased, while that of domestic institutional investors remained unchanged at 7%, the same as the previous year.

• Ito En Ltd (2593 JP) is a slightly strange stock in the grand scheme of things.
• It is expensive for its growth, and the shareholder register is such that it is subject to the whims and vagaries of forces over which investors may have no control.
• This time, it is MSCI. Stock prices go up, stocks go in the indices. Stock prices fall, they come out. It’s coming out this month. So who buys?

• Adways Inc (2489 JP) is an ad agency, ad platform, marketing platform, and a variety of sub-platforms serving certain mobile, PC, marketing, and app development niches. 
• They released earnings last Friday, but today released other – follow-on information. 
• Included was a buyback – up to 5.7mm shares (13.57% of shares out) for up to ¥2bn (9% of mktcap) – over the next 5.5 months. Seems big. Look closer.

• Trend Micro Inc (4704 JP) is an interesting, but odd little company in an interesting odd little niche. They make cybersecurity products and are good at it. 
• Last summer, well-known activist Value Act Capital showed up on the tape in August with an 8.7% position. 
• What had been good dividend payout ratios are now cemented. Now there is a big buyback to return cash. Look for more. And as always, details matter. 

• Rakuten Bank, the online banking arm of Rakuten Inc (4755 JP), aims to raise around US$500m (estimated) in its Japan listing in April 2023. 
• RB is the largest internet bank in Japan, by number of accounts. As of Mar 2023, it had 13.39m deposit accounts with a total deposit base of JPY8.6tn. 
• In this note we take an early look at the IPO and talk about the not-so-positive aspects of its past performance.

• Toyo Construction (1890 JP) will set up a special committee to evaluate YFO’s JPY1,100 offer. The Board will decide “after respecting the content of the decision of the special committee.”
• YFO rightly points out the special committee is a ruse and is an attempt by the Board to demonstrate ‘a fair process’ for the predictable decision to reject its proposal.
• The Board’s anxious move shows that protracted conflict is shifting in favour of YFO. At the last close, the gross spread to the tender offer is 10.3%.  

• We were too early to turn bearish on Asics. Recent stock price performance has been strong
• Although rising inventories have yet to impact on margins, they are a potential red flag
• The stock is not cheap at 29x PE. The long-term financial model suggests limited upside from here

• MatsukiyoCocokara (3088 JP) has run up quite well in the past year, rising strongly and outperforming Peers significantly. It has been the avatar of Inbound Rebound hopes and dreams.
• Over that time, forward EPS expectations have also improved, but not as much as price. MatsukiyoCocokara used to be cheap to peers on forward PER. Now it is not.
• 28 Feb sees an MSCI inclusion trade to swing 7% of shares from active to passive. Understanding where those come from is key.

• Japan Tobacco (2914 JP)’s 4Q22 results were stronger than anticipated yet again with revenue and OP surpassing consensus by 4.3% and 35.2% respectively through selling price increments.
• 2023 guidance looks a bit disappointing, with the company guiding adjusted OP at ¥667bn in 2023 compared to ¥729bn in the previous year, expecting an unfavourable foreign exchange movement.
• But the highlight these days was the proposal by the activist investor LIM Advisors to dispose JT’s share ownership in Torii Pharmaceutical (4551 JP).

• Last week, Japanese dairy play Morinaga Milk Industry Co (2264 JP) acquired a soy-based food company in the US and a baby formula distribution company in Vietnam
• These acquisitions are in keeping with Moringa’s medium-term business plan (to Mar-2025) to achieve an overseas sale ratio of 13%, compared to 8.7% last year.
• 3Q23 results were also announced with 9M23 sales and operating profit of ¥405.2bn and ¥20.5bn, a change of +16.8% and -7.2% yoy.

• Rakuten Bank, the online banking arm of Rakuten Inc (4755 JP), aims to raise around US$500m (estimated) in its Japan listing in April 2023. 
• RB is the largest internet bank in Japan, by number of accounts. As of Mar 2023, it had 13.39m deposit accounts with a total deposit base of JPY8.6tn. 
• In this note we take an early look at the IPO and talk about the positive aspects of its past performance.

• Since the revised Corporate Governance Code in 2021 requires TCFD disclosure for prime market listed companies, TCFD disclosure is expected to expand to all prime listed market companies going forward.
• Most companies do not have a roadmap for meeting their emissions targets, and there is a need to look carefully at whether their numerical targets and timelines are reasonable.
• Until now, companies that preceded TCFD disclosures have mainly disclosed information in integrated reports. However, attention will focus on how these information will be disclosed in the Annual Securities Report.

• Toshiba results looked rather poor at the headline on account of additional one-off costs leading to a guidance downgrade to ¥95bn in OP. 
• Despite that, we see some small positive signs across the various industrial segments. 
• On balance, however, the downgrade and tight lips on the JIP bid leave little to be positive about in the near term.

• A trade idea involving Kirin Holdings (2503 JP) from a Holdco perspective, which we suggested last year outperformed Topix by more than 30% in the first 9 months of 2022.
• Since November 2022, Kirin has underperformed Topix by 18% (driven by input cost inflation) to push the Holdco discount yet again to an attractive level.
• The price hike announcement yesterday could change the cost inflation narrative and help Kirin to keep on unwinding the Holdco discount.

• On 14 February 2023, Idemitsu Kosan (5019 JP) reported Q3 results. They were less impressive than one would have hoped. 
• Lower USDJPY and lower Dubai crude prices mean a JPY 90bn hit to inventory marks, but the rest of the petro business made almost no money in the quarter. 
• However, the company announced a large buyback. THAT is worth looking at. 

• Shimano’s Q4 results were on track, but management is guiding for a GFC-level slump in 2023
• Management cites macro concerns, but these are well-known, discounted, and already recovering…probably
• Shimano’s stock price is trading at 23x bearish guidance versus its historical average of 25x. 

• Q4 results largely met our expectations with modest improvements QoQ for mobile operating losses and decent growth for eCommerce and fintech
• A meaningful rebound for the mobile segment is more likely to fall in H2 as cost reductions take time to kick in 
• Results for eCommerce and fintech were more encouraging but less relevant as long as the mobile segment struggles.  We remain at Neutral

• freee (4478 JP) reported 2QFY06/2023 results today. Revenue increased 35.3% YoY to JPY4,479m (vs consensus JPY4,469.5m) while operating losses for the quarter widened to JPY1,281m (vs consensus JPY1,574.5m).
• Both ARPU and no. of paying customers continue to increase and the company’s strategy of onboarding large corporates seems to pay off.
• Widening operating loss is no major concern as it is a matter of time before freee cuts down advertising and other costs given the expanding revenue base and excessive GPM.

Dentsu reported record full-year headline results in FY22, which were bolstered by a final quarter in which the company delivered organic net revenue growth of 3.5%. Good progress continues to be made in Customer Transformation and Technology (CT&T), which grew 17.5% y-o-y and constituted 32% of revenues in the year. Management forecasts 4% organic revenue growth for FY23, reflecting the tougher macroeconomic environment. Guidance on the underlying operating margin in FY23 is for a retrenchment to 17.5% as investment is made to drive CT&T and support the One dentsu initiative. This is set to rebound to 18.0% in FY24 as the benefits start to flow through. Year-end net cash of ¥71.3bn and an appetite for leverage of 1.0–1.5x provides ample resource for both capex and M&A. Our FY23 estimates are under review.

• Last week (on 10 February), Canon Inc (7751 JP) announced it intended to delist its ADRs from the NYSE.
• Canon is the third Japanese company to do so in two months, after Eisai Co Ltd (4523 JP) announced in December and Olympus Corp (7733 JP) in January.
• No related investment opportunity but there may be a trade to do.

• Today, Citizen Watch (7762 JP) reported Q3 earnings, and a BIG buyback.
• It is a VERY BIG BUYBACK at up to 75mm shares (25.61% of shares out), with an allocation of up to ¥40bn (which is ~22.1% at last price).
• The buyback is to be executed over the next year. Buyback structure (undisclosed) matters and shareholder structure matters too. There is a big short. This could get really interesting.

• Oasis proposals to restructure the Fujitec Co Ltd (6406 JP) Board which will be voted on at the 24 February EGM have got independent proxy advisor, ISS, support.
• An Oasis win would renew enthusiasm that Fujitec can close the performance gap with peers, resulting in a catalyst for the rerating of the shares.
• An Oasis loss is not disastrous as Oasis could come back or Fujitec would likely offer a premium to buyout Oasis. Fujitec is also cheap on a cash-adjusted P/E basis.

• Rohm is increasingly an automotive semiconductor maker. Its business should hold up reasonably well in the downturn and grow significantly in the long term.
• Capital spending risks excess capacity in the coming year, but sets the stage for long term growth. Possible investment in Toshiba a positive. 
• Weak quarters ahead. Buy on weakness for the long term. 

• Shiseido Company (4911 JP)’s share price is down more than 4% today following a mixed 4Q22 with revenue missing consensus by 2.1% but OP beating by 31.7%.
• A lot of optimism was baked in the medium-term plan, but 2023 OP guidance (¥60.0bn) was ¥17.5bn below consensus expectations.
• Nevertheless, we think this shouldn’t worry investors too much as Shiseido has outperformed initial guidance by an average of ¥17.0bn over the past 3 years.

• Recruit’s Q3 results are unlikely to move the market. Full year guidance slightly above consensus estimates
• Much of the bad news on the labour market and interest rates is now discounted in current valuations
• We remain bullish. At 23x PE the stock is trading at a deep discount to its historical 30x

• Footwear sales plummeted during Covid, except for sports and hiking shoes, with a deleterious impact on all the big three retailers. 
• While ABC Mart has recovered, Chiyoda and G-Foot continue to struggle, leaving the market wide open. 
• Disruption is coming in the form of Workman but others might also see the opportunity.

• Recruit Holdings (6098 JP) reported 3QFY03/2023 results today. Revenue increased 18% YoY to JPY880.1bn (vs consensus JPY862.0bn) while operating profit for the quarter decreased 12.4% YoY to JPY96.8bn (consensus JPY107.2bn).
• Though HR Tech top line grew 24.2% YoY, it declined sequentially while adjusted EBITDA margin of the segment also declined during the quarter.
• Recruit’s share price has fallen 24% over the last 12-months and with further weakening of labour markets, there is more room for shares to fall.

• Regarding the three most in-demand documents, only 30-50% of companies with over 30% foreign ownership disclose them in English. The mismatch between overseas investors’ demand and companies’ disclosure continues.
• If TSE requires faster timing of disclosure in English, companies may limit the materials they disclose in English due to increased burden. Disclosing necessary materials is more important than timing.
• In order to encourage companies to disclose in English in their annual securities reports, the Corporate Governance Code should clearly state the disclosure in English in the annual securities report.

• A little over two weeks ago, western media outlets reported “sources familiar with the matter” said Elliott Management had built a “significant” stake in Dai Nippon Printing (7912 JP). 
• DNP has been a “value name” for years. And years. Lots of cash, lots of real estate, and lots of cross-holdings. DNP had a plan to sell crossholdings, slowly.
• DNP had planned a March 9 presentation of its new MTMP. Elliott, reportedly with a little less than 5%, wanted faster. A few weeks later, DNP has responded with faster. 

• Engineering & Construction firm Jgc Corp (1963 JP) on Friday announced 9M results. Full-Year forecasts were revised, with revenue lowered, but OP, RP, and NP unchanged.
• The company then also announced a ToSTNeT-3 buyback of up to 4.77% of shares out for ¥20bn to be executed Monday 13 February pre-open. But details matter. 
• Four Important Takeaways: 1) sometimes a ToSTNeT-3 buyback is not a ToSTNeT-3 buyback, 2) that can be a good sign, and 3) sometimes Adjusted EV vs Adjusted EBITDA is OK.

• Ueda seems like a centrist candidate compared to Amamiya (dove) or Yamaguchi (hawk)
• Ueda, if he gets the nod on Tuesday, is likely to slowly but surely distance himself from YCC
• We continue to like JPY on the prospects of tighter USD-JPY rates spreads 

• The market welcomed TEL’s 3Q results and new guidance, but sales, profits and margins continue to decline year-on-year.
• An optimistic consensus sees a new cyclical high in the second half of the decade, but avoids the question of disengagement from China.
• Inventories are at a record high. Valuations out to FY Mar-25 do not look attractive. 

• The MSCI revised the Adani Group weighting after reviewing FF. Adani Enterprises (ADE IN)affected. Adani Green (ADANIGR IN), Adani Power (ADANI IN), and Adani Ports (ADSEZ IN) not affected. 
• Hongkong Land (HKL SP) is dirt cheap at 0.3x P/B. It is a China re-opening play. Plus the company is buying back shares. 
• The Nikkei didn’t write an article on Toshiba (6502 JP) when everyone else did. They waited another day, with what appears to be a zinger on price at “about ¥2trln“. 

• 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) guides to the low end of the IDR875-880 price range and Hesai Group (HSAI US) has a good debut.
• Event-Driven developments – Newcrest Mining (NCM AU), Nitro Software Ltd (NTO AU), Toshiba Corp (6502 JP), Ihara Science (5999 JP), Boustead Projects (BOCJ SP), Sabana Industrial REIT (SSREIT SP). 

• The Nikkei article addresses high-dividend investing as short-term strategy, while “Quality Income” is in demand by long-term investors seeking stable long-term performance. Both strategies have different investor segments and needs.
• Many Japanese companies have basic policy of “stable dividends,” but it is easier for shareholders seeking to increase shareholder interests to understand a dividend policy based on clear cash allocations.
• Given that Metrical’s analysis also found no correlation between changes in market capitalization and dividend policy scores, linking dividends and stock price is a difficult problem.

• Dai Nippon Printing’s announcement that it would double its RoE target in its next MTP was a pleasant surprise. 
• Together with saucy hints that future buybacks could be the biggest in its history this has propelled the stock to a post-2007 high. 
• We think Elliott has found an easy win here and consider this likely to end as a standout success for activism in Japan.

• The Nikkei was out this morning with its belated take on JIP securing financing. 
• The article was nevertheless rather negative in its tone causing Toshiba to drop as much as 3.6% before recovering most of those losses. 
• We aren’t entirely sure it should have but Toshiba Tec does pique our interest.

• The Nikkei reports that Japan Industrial Partners (JIP), the preferred bidder, has finally secured financing and submitted a final offer to Toshiba Corp (6502 JP)’s Board.
• Nikkei notes that JIP expects to spend about JPY2 trillion on the acquisition suggesting an offer price around JPY4,750 per share, -4% below the undisturbed price of JPY4,957.60 (21 April).
• The hard part now is getting the Board to accept the unremarkable offer and the banks’ conditions. If the Board succumbs, the next challenge is to get shareholders to accept.

• TEL 3QF23 operating profit -26% YoY to Y115b, beating analyst estimates
• Full year operating profit guidance revised up Y546->Y580b, ahead of Street estimates
• MAGIC – Metaverse, Autonomous mobility, Greentech, IoT, Communication Services – to drive long-term semicon demand

• Renesas Electronics (6723 JP) today reported full-year 2022 earnings with revenues 0.032% higher than the high end of guidance, which was better than consensus. OP was not as good.
• They have guided Q1 only, with revenues up 0.2-4.6%, and non-GAAP GPM -3.9% to 54.5%, and OPM -6.6% to 32.5%. But they also announced a Tender Offer Buyback. 
• The buyback is smaller than I’d like, but the company has added cash despite last year’s tender offer and repaying bank borrowings. Lots to like here. 

• Segment results for DoCoMo and NTT Data were impressive as NTT plans to restructure both businesses start to bear fruit
• DoCoMo is also leading MNOs in moving past the impact of regulatory driven price reductions with Q3 service revenue largely flat YoY supported by 5G upsell and subscriber wins
• Rising utility costs have had a material impact on profitability for NTT East and West but management believes upside in other areas and cost discipline provides some offset

• There seems to be consensus on the end of the transitional measures in 3 years. Even if this issue is finally settled, the issue of prime market quality will remain.
• There’s no better solution to raise stock price than for companies to develop their own strategies and expand corporate value. TSE should promote metabolism and improve quality of the market.
• If the quality of corporate governance is an issue, it is necessary to encourage change in boards that are dominated by male internal executive directors and lack diversity.

• Pan Pacific International Holdings (7532 JP)’s 2QFY23 was a touch above consensus with revenue at ¥504.8bn (consensus: ¥497.6bn) and OP at ¥33.6bn (consensus: ¥30.3bn).
• With consensus cautious about personal brands potential, earnings have beaten consensus in each of the past five quarters.
• Having already proven the personal brands earnings potential, we think it is unwarranted for consensus to discount PPIH’s personal brands growth.

• As mentioned yesterday here and more clearly by Mio Kato in Toshiba – Good News?, the Nikkei was strangely silent over the fact that loan details were agreed. 
• The Nikkei comes out with a surprise article this morning saying they hear the Commitment Letter has been handed over. It also says the “Final Bid” is “about ¥2trln.”
• Toshiba shares quickly reacted badly quickly. The article deserves parsing and I try to clarify the arguments.

• 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.
• This insight is a follow-up to TOPIX Inclusions: Who Is Ready (Jan 2023) 
• Our top pick from the last insight CELSYS (3663 JP) (previously known as Artspark) has gained ~14% in roughly a month.

• AGC Inc (5201 JP) today announced Q4 earnings where revenues were great, OP was slightly disappointing, and Net Profits were awful because of significant impairments.
• The company, however, announced a large buyback – its first in 5 years and equivalent to all the buybacks in the previous five years. 
• The buyback should have impact on what is an interesting name with broad institutional ownership and not overwhelming liquidity.

• Ihara Science (5999 JP) announced an MBO by the chairman. 
• It’s at an all-time high, but it is not especially attractive. The register is also really interesting.
• This is a smallcap but i would not be surprised to see a bumpitrage effort. In fact, I’d be surprised if we didn’t.

• Fancl Corp (4921 JP) delivered 3QFY23 results yesterday, which saw revenue and operating profit decrease by 2.5% and 5.0% YoY respectively to ¥28.3bn (consensus ¥29.8bn) and ¥3.1bn (consensus ¥3.4bn).
• Cosmetics growth being the main reason for Fancl’s FY+2 EV/OP of 22.4x, recent trends look scary with cosmetics revenue and OP down 24% and 27% respectively from the pre-COVID level.
• Therefore, we would look to short Fancl expecting shares to fall around 25-30% in the short term.

• Ihara Science (5999 JP) has recommended an MBO tender offer (Chairman and Toku Corporation) of JPY2,980 per share, a 31.3% premium to the undisturbed price (7 February).
• The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the tender offer is set at a 66.25% ownership ratio.
• While the tender price represents an all-time share price, it is light in comparison to peer and historical multiples. This suggests deal risk. The offer runs from 9 Feb-24 Mar.

• At TMA we deliver high probability outcomes by focusing on our 3 pillars of technical analysis. •1) Response to key levels. •2) Price action. •3) Momentum confirmation.
• Q1 2023 is confirming that the base built around the historically significant 50 quarter MA since Q3 2021 is likely to be a material LT bottom.
• Both price action and LT momentum triggers (particularly the quarterly RSI) are confirming a sustainable LT uptrend in 2023 and potentially well into 2024. Potential 20% upswing.

• FUJIFILM Holdings (4901 JP) delivered 3QFY03/2023 results today. Revenue and OP increased 13.5% and 4.1% YoY respectively to JPY744.4bn (consensus JPY717.1bn) and JPY81.8bn (consensus JPY80.0bn).
• Covid-19 related projects running its course had a slight impact on  healthcare segment but we would not be too worried as new product launches and markets will offset that decline.
• Market continues to value Fujifilm as an image company and not a healthcare stock and there is more than 30% upside to the current share price.

• IIJ delivered double-digit revenue growth for a third consecutive quarter as corporate demand for digitization remains robust
• In addition the expected expansion of cloud (+15%) and security service (+21%) sales, mobile sales grew 9% as IIJ moved clearly past the impact of industrywide rate reductions
• Quarterly EBITDA reached a record high even with modest margin contraction YoY