Japan

In today’s briefing:

Toshiba (6502) – Funding Definitely Probably Now Secured – Next Steps and Risks
Nintendo (7974) | Game Over for Switch
Carlyle 86% Premium ¥4460 TOB on Iwasaki Elec – Probably Light, and Interesting Shareholder Register
Nissan’s Renault Led Selldown Very Early Look – US$4.3bn Prolonged Overhang or Lack Thereof
Softbank Group (Neutral) – Q3 22 Results Reaction: Defensive Stance Intact as VF Losses Continue
Toshiba – Good News?
Toyo Construction (1890 JP): YFO and the Board Trading Half-Truths
Z Holdings (4689.JP) Upgrade to BUY: Leaner Business Lines with PayPay Drives Growth
Japanese Companies with Low Debt Should Evaluate Profitability in Terms of ROA Rather than ROE

Toshiba (6502) – Funding Definitely Probably Now Secured – Next Steps and Risks

On 31 January, the expected “deadline” for a bank loan agreement with the JIP Consortium bidding for Toshiba, we got news that commitment confirmation would be extended to 3 February.
Every other time we got a deadline extension, we got an article. On 3-6 Feb, we got no article, suggesting we were close. Today, a Bloomberg article says terms agreed.
That gets us over the biggest hump. Now we have to look at possible next steps and timing.

Nintendo (7974) | Game Over for Switch

Nintendo reported operating profit of 190b yen (-8% YoY), falling far short of Street expectations
The Nintendo Switch is now a six-year old console and demand is exhausted. A normalization of chip/supply chain issues benefits the newer PS5
Our thesis is that the hardware cycle has peaked and that the share price will head lower in tandem with the dwindling top line

Carlyle 86% Premium ¥4460 TOB on Iwasaki Elec – Probably Light, and Interesting Shareholder Register

Carlyle has agreed to do an MBO on Iwasaki Electric (6924 JP) where the existing CEO who is 65yrs old will take a 0.5% stake.
As a purveyor of specialist industrial lighting, including transition to LED lighting for public space use, the company’s place in the ecosystem is not undesirable. But it isn’t hugely profitable.
This smallcap takeout at an 86% premium is probably still too light. And the Shareholder Structure is interesting.

Nissan’s Renault Led Selldown Very Early Look – US$4.3bn Prolonged Overhang or Lack Thereof

By Sumeet Singh

With Nissan (7201 JP) and Renault coming to a new arrangement regarding their working relationship, Renault will be left with a US$4.3bn Nissan stake that it will look to sell eventually.
The selldown will probably take a long while to materialize.
In this note, we talk about the announcement and take a very early look at the possible selldown.

Softbank Group (Neutral) – Q3 22 Results Reaction: Defensive Stance Intact as VF Losses Continue

Management pushed a conservative / defensive line for Q3 as markets remain uncertain and investment losses continue
Revenue growth at ARM was better than expected as licensing revenues rebounded strongly. Guidance for the timing of an IPO (sometime in 2023) remains unchanged
This was a slightly disappointing quarter but hopes were not high heading into the print with the discount hovering around 35%

Toshiba – Good News?

By Mio Kato

So JIP appears to have finally secured funding for its tortured Toshiba bid.
The market is reacting positively and we think this is reasonable but the real question is whether Toshiba management will be amenable to the new terms of JIP’s deal.
In our view, there are certain quirks regarding recent news flow which point to a potential answer to that question.

Toyo Construction (1890 JP): YFO and the Board Trading Half-Truths

YFO’s latest press release outlines the key objectives of a revamped Toyo Construction (1890 JP) Board, should its recommended directors get elected at the June AGM.
YFO’s strategy is to revamp the Board, which should pave the way for its tender offer. YFO’s standstill agreement expires on 24 May and the tender offer starts in late-September.
The Board could allege that YFO has breached its NDA agreement and re-introduce a poison pill. The Board could look to garner enough support to block YFO’s nominations.

Z Holdings (4689.JP) Upgrade to BUY: Leaner Business Lines with PayPay Drives Growth

By Shawn Yang

ZHD F3Q22 (C4Q22) net revenue slightly missed our est. and cons. by (2%) and (1%). Adjusted EBITDA margin was in line with our est. excluding impact from PayPay consolidation.
PayPay will continue to be the growth driver for ZHD with increase in unit spending supported by premium credit card offering and deepening integration with group’s other services.
We upgrade ZHD to BUY and raise our TP to JPY 435 to reflect beat in profitability and upsides in PayPay

Japanese Companies with Low Debt Should Evaluate Profitability in Terms of ROA Rather than ROE

While OP margin remains flat, ROE increased moderately due to higher in total-asset-turnover. Going forward, the drivers of ROE growth are likely to continue through reductions in cash and cross-shareholdings.
It would be more likely to find it in a company that already has high operating profit margin and where ROE can be improved by improving the total asset turnover.
Based on my analysis so far, I assume that companies that raised their stock price valuations did so by clarifying their cash allocation policies and engaging in communication with investors.

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Feb 07

Daily Brief Japan: Nissan Motor, Iwasaki Electric, JPY and more

In today’s briefing:

Renault & Nissan Deal Done: Still a Trading Nothing🍔 So Far, OK Framework but Need Shaq Fingerguns
Iwasaki Electric (6924 JP): JPY4,460 MBO Tender Offer from Carlyle
USDJPY – Is USDJPY Confirming a Return to the Long-Term Uptrend?

Renault & Nissan Deal Done: Still a Trading Nothing🍔 So Far, OK Framework but Need Shaq Fingerguns

As “disclosed” recently, we have a deal. Nissan Motor (7201 JP) will invest “up to 15%” in Ampere. Mitsubishi Motors (7211 JP) may join. They have many potential joint projects.
The key is the Governance Framework, which replaces RAMA. Renault SA (RNO FP) puts 28.4% of Nissan in an open-ended Trust. Renault and Nissan have 15% reciprocal voting rights.
The webcast is more optimistic than I am. Luca de Meo made special mention of the joint projects. This sounds good. It sounds like what has always been promised.

Iwasaki Electric (6924 JP): JPY4,460 MBO Tender Offer from Carlyle

Iwasaki Electric (6924 JP) has recommended an MBO tender offer, sponsored by Carlyle Group Inc (CG US), of JPY4,460 per share, an 86.1% premium to the undisturbed price (6 February).
The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the offer has been set to meet the 66.67% ownership ratio.
The tender offer is attractive and represents a ten-year share price high. This suggests a done deal. The tender offer period is from 7 February to 22 March.

USDJPY – Is USDJPY Confirming a Return to the Long-Term Uptrend?

By David Coloretti, CMT

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.
Last week delivered a host of bullish MT USD reversal patterns across USD/G10 and USD/Asia pairs.
USDJPY has responded impulsively to critical LT support around 127.50. February has the potential to confirm a return to the multi-year uptrend with aggressive targets around 175/180.

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Feb 06

Daily Brief Japan: Mitsui & Co Ltd, M3 Inc, Zojirushi Corp and more

In today’s briefing:

Mitsui & Co (8031) Q3 – Big Profit, New Bigger Buyback, Some Index Selling; and Competition
M3: Slow Down in Pharma Marketing a Significant Downside Risk
Unreasonable Company Opposition, but No Change in Outlook for Shareholder Proposals to Be Rejected

Mitsui & Co (8031) Q3 – Big Profit, New Bigger Buyback, Some Index Selling; and Competition

By Shifara Samsudeen, ACMA, CGMA

Mitsui & Co Ltd (8031 JP) reported Q3 earnings Friday afternoon during the market session. Like at Q2, they upped their fiscal-year forecast to well above Street consensus.
Also like Q2, they announced a buyback – this one an extension in time, shares, and money on the one already in place, raising the total Core CashFlow Payout Ratio.
This creates interesting index flows over the next several months, and other trading cos have live buybacks too.

M3: Slow Down in Pharma Marketing a Significant Downside Risk

M3 Inc (2413 JP) reported 3QFY03/2023 earnings today. Revenue increased 12.6% YoY to JPY64.6bn (vs consensus JPY62.6bn) while OP decreased 3.0% YoY to JPY22.0bn (vs consensus JPY22.8bn).
In line with our expectation, m3 has mentioned that it expects pharma marketing revenues to slow down with pharmaceutical companies cutting down their budgets.
Though m3 has made a large no. of M&A deals to pursue growth, we have not seen extraordinary growth in overseas biz and think there is significant downside risk.

Unreasonable Company Opposition, but No Change in Outlook for Shareholder Proposals to Be Rejected

Zojirushi’s low profitability and numerical targets are at the root of the problem with this shareholder proposal, which required disclosure of cost of capital to verify reasonableness of the targets.
To ensure transparency of BOD, it would have required individual disclosure of director compensation, divestment of policy shareholdings, and elimination of takeover defenses, which are issues of corporate governance practices.
When % foreign shareholders reaches 30% level, companies tend to eliminate takeover defense. Since Zojirushi’s % foreign shareholders is 20%, the shareholder proposal will be very likely to be rejected.

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Feb 04

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

In today’s briefing:

Softbank Corp (Buy) – Q3 22 Results Reaction: Modest Mobile Improvement, on Track to Meet Targets
Overseas Investors Have Done a Great Deal to Improve the Governance of Japanese Companies, But…

Softbank Corp (Buy) – Q3 22 Results Reaction: Modest Mobile Improvement, on Track to Meet Targets

Consumer mobile revenue fell 7% but that partly reflects how sales were reported a year ago. Reported ARPU was down 5% whilst price cut erosion narrowed
Operating income YTD is 94% of full-year targets leaving room for Softbank to achieve its goal even with increased investment spending
This was a relatively uneventful quarter and we remain at Buy

Overseas Investors Have Done a Great Deal to Improve the Governance of Japanese Companies, But…

11 of 14 corporate governance criteria confirmed the significance of % foreign shareholder. In particular, 9 of 14 criteria showed progress in their efforts due to engagement of overseas investors.
Overseas investors are concerned about whether the interests of minority shareholders can be secured in companies with large shareholders, such as listed subsidiaries, and whether governance will function properly.
As for the independence of the Nominating and Compensation Committee, which didn’t show significant correlation with % of foreign shareholders, it’s still beyond the power of engagement by overseas investors.

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Feb 03

Daily Brief Japan: Techno Associe, Nissin Electric, Keisei Electric Railway Co, Sony Corp, Kyocera Corp, Z Holdings, Takeda Pharmaceutical, KDDI Corp and more

In today’s briefing:

Sumitomo Elec Buys Out Sub Techno Associé) At ¥1,695/Share – Insulting Explanation. Deserves More.
Sumitomo Electric Buys Out Sub Nissin Electric (6641) At ¥1,700/Share – ATH But Still Too Low
Keisei Electric: Needs Activists to Push the Market
Nissin Electric (6641 JP): JPY1,700 Tender Offer from Sumitomo Electric
SONY (6758) | Re-Acceleration of Growth in Games
Techno Associe (8249 JP): JPY1,695 Tender Offer from Sumitomo Electric
Kyocera (6971 JP): Massive Downward Revision
Z Holdings (Neutral) – Q3 22 Results Reaction: Lofty EBITDA Targets Cut on Erosion in Core Business
Takeda: Top Line Beats Consensus, Steady Pipeline Progress and Further Upside
KDDI (Buy) – Q3 22 Results Reaction: Super Mobile but Full-Year Targets Look Challenging

Sumitomo Elec Buys Out Sub Techno Associé) At ¥1,695/Share – Insulting Explanation. Deserves More.

Sumitomo Electric Industries (5802 JP) is taking over to subs through tender offers. Both are light. Both this one for Techno Associe (8249 JP) and the one for Nissin Electric.
Both deals are light -slightly offensive, but in different ways. The Board decisions are more offensive than the actual prices, but it’s Sumi Elec buying, so those are offensive too.
There’s a history here. Sumi Elec went to 51% at an offensively low price (EV/EBITDA below zero) in 2019. But this is probably a done deal anyway.

Sumitomo Electric Buys Out Sub Nissin Electric (6641) At ¥1,700/Share – ATH But Still Too Low

Sumitomo Electric Industries (5802 JP) has announced a takeover of two of its subsidiaries today. The larger one is Nissin Electric (6641 JP).
This deal, done for governance purposes, hits an all-time high price. But, like others, it ignores synergies in pricing, has an inadequate premium, and process is just bad.
But given the shareholder structure, this is highly likely to sail through un-molested.

Keisei Electric: Needs Activists to Push the Market

By Oshadhi Kumarasiri

We think there’s something fundamentally wrong with Keisei Electric Railway Co (9009 JP)’s current valuation.
Its core business with an estimated fair value of ¥720bn, currently has an implied valuation of negative ¥942bn (stub value).
If investors can convince the management to dispose its stake in Oriental Land (4661 JP), we think there’s more than a 200% upside to Keisei Electric’s valuation.

Nissin Electric (6641 JP): JPY1,700 Tender Offer from Sumitomo Electric

Nissin Electric (6641 JP) has recommended Sumitomo Electric Industries (5802 JP)’s tender offer of JPY1,700 per share, an 22.7% premium to the undisturbed price (2 February).
The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the offer has been set to meet the 66.67% ownership ratio.
The tender offer is attractive in comparison to peer multiples and historical price ranges. Excluding the offeror, there are no substantial shareholders. This suggests a done deal.

SONY (6758) | Re-Acceleration of Growth in Games

Sony’s Q3 operating profit fell 8% YoY to Y428b beating consensus estimates by around 15%
The PS5 has now sold over 32m units, finally shaking off supply constraints. Will VR2 surprise?
We remain bullish on the stock at 15x earnings. Sony is a core play on content creation and digitization.

Techno Associe (8249 JP): JPY1,695 Tender Offer from Sumitomo Electric

Techno Associe (8249 JP) has recommended Sumitomo Electric Industries (5802 JP)’s tender offer of JPY1,695 per share, an 36.9% premium to the undisturbed price (2 February).
The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the offer has been set to meet the 66.67% ownership ratio.
The tender offer is attractive and represents an all-time share price high. This suggests a done deal. The tender offer period is from 3 February to 22 March.

Kyocera (6971 JP): Massive Downward Revision

By Scott Foster

Kyocera cut FY Mar-23 operating profit guidance by more than 30% while leaving sales guidance unchanged. Draw your own conclusions about the reliability of company forecasts.
Sales began to decline in 3Q and the rate of decline is likely to increase in 4Q. There is a large inventory overhang.
The shares dropped 3% today. Wait for capitulation as the reality of recession sinks in.

Z Holdings (Neutral) – Q3 22 Results Reaction: Lofty EBITDA Targets Cut on Erosion in Core Business

By Shifara Samsudeen, ACMA, CGMA

Management has cut its FY23 EBITDA target from its long-term goal of ¥390bn to c. ¥363bn as its core ad and eCommerce performance gets weaker
Advertising revenue fell 1% YoY whilst eCommerce volumes (GTV) on the core third-party marketplace Yahoo!Shopping were also down significantly
The outlook for FY23 is further blurred by management changes to address business challenges and deeper LINE/Yahoo integration. We are lowering our target price to ¥425

Takeda: Top Line Beats Consensus, Steady Pipeline Progress and Further Upside

Takeda Pharmaceutical (4502 JP) reported 3QFY03/2023 results today. Reported revenue increased 11.2% YoY to JPY1,096.6bn (vs consensus JPY996bn) while OP increased 26.2% YoY to JPY147bn (vs consensus JPY180.1).
The drop in OP vs consensus was mainly due to the depreciation of the Yen, nevertheless, OPM improved 30bps to 13.4% during the quarter.
Takeda has not revised full-year forecast, however, we think the company will easily beat its own guidance as it pushes forward with its development pipeline further aided by M&A.

KDDI (Buy) – Q3 22 Results Reaction: Super Mobile but Full-Year Targets Look Challenging

Core mobile revenue fell 4% but that is an improvement from 7-8% declines over the last few quarters and including value-added sales (VAS), retail mobile spend is up
Competitive challenges remain with elevated churn and visible declines in roaming revenue from Rakuten (although sequential change has been modest)
KDDI has kept guidance for FY22 operating income growth unchanged despite unanticipated expenses for rising fuel costs and the July network failure

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Feb 02

Daily Brief Japan: Oriental Land, Mercari Inc, Softbank Group, Omron Corp, Sky Perfect Jsat, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

Oriental Land (4661) As Nikkei 225 Candidate – What Is Float? What Is “The Tricky Twist”?
TOPIX Index Upweights: An Early Preview Of “The Big April Basket” 2023
Softbank Group (Neutral) – Japan’s Global Tech Play: Initiation of Coverage and Q3 Preview
Omron (6645) | Q3 Beat, New Management Team
Sky Perfect JSAT (Buy) – Q3 22 Results Reaction: Satellite Growth Offsets Media Weakness
Could the Turnaround Be Due to a Change in Management?

Oriental Land (4661) As Nikkei 225 Candidate – What Is Float? What Is “The Tricky Twist”?

As discussed in Nikkei 225 March Review – Quiddity Leaderboard (Jan 2023) (and earlier versions), Oriental Land (4661 JP) is a candidate to join the Nikkei 225 in March 2023.
As of early January, it was the top-ranked impact name with 11.8 days of ADV to buy, and if it underperformed the Nikkei from there, there’d be more to buy.
With the data collection period now complete, it is top-ranked, still. And it is still ~10-12 days to buy. Understanding shareholder structure, however, is key. So I dive in.

TOPIX Index Upweights: An Early Preview Of “The Big April Basket” 2023

By Janaghan Jeyakumar, CFA

The Tokyo Stock Exchange (TSE) calculates Free-Float Weight (FFW) for each listed company and uses this value as a key component of TOPIX Index Calculation.
For companies with “low liquidity” the FFW will be multiplied by a fixed liquidity factor of 0.75 to derive the final FFW used for index calculation.
Every April, the application of this liquidity factor is reviewed by the TSE. In this insight, we take an early look at what could happen in April 2023.

Softbank Group (Neutral) – Japan’s Global Tech Play: Initiation of Coverage and Q3 Preview

In this deep dive report, we initiate coverage on Softbank Group with a ¥6,300 target price and Neutral recommendation
We are cautious on global tech and consider that the main risk to the story but a recovery in China sentiment provides some offset
For Q3 results next week, we expect the defensive theme of the last two quarters to continue

Omron (6645) | Q3 Beat, New Management Team

We expected the market to react positively to the Q3 beat. There are clouds on the order horizon, but that is well-known
A big management shuffle was also announced. We think the new CEO and CFO will follow the same LT Vision, but need to do more to meet rising capital costs
Our core bullish thesis rests on growth in Industrial Automation. As expectations for interest rate hikes fade, we think investors will start to price in a 2023/4 order recovery

Sky Perfect JSAT (Buy) – Q3 22 Results Reaction: Satellite Growth Offsets Media Weakness

As expected space segment revenue growth accelerated as global/mobile sales took off offsetting media revenue erosion
User trends in the video business remain weak although Q3 subscriber losses improved QoQ despite this being the seasonally weakest quarter
We are leaving our forecasts unchanged and remain at Buy

Could the Turnaround Be Due to a Change in Management?

Fujikura and JVC Kenwood, which could generate cash flow by restructuring their business portfolios, were evaluated as “value stocks” due to the gap between their corporate value and stock prices.
Fujikura and JVC Kenwood haven’t posted record profits in 17 and 11 years, respectively. The key to solving why it took so long may be the change in top management.
If management doesn’t listen, structural reforms won’t be implemented, even if shareholders repeatedly suggest restructuring business portfolio. This is why it’s important for shareholders to replace management that continues underperforming.

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Feb 01

Daily Brief Japan: Keisei Electric Railway Co, Baycurrent Consulting, Toshiba Corp, Oriental Land, Komatsu Ltd, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

StubWorld: Mickey Upstages Keisei Electric
MSCI Feb 2023 QCIR Preview: Potential Changes as Review Period Ends
Toshiba (6502) – Funding Mostly Secured, Still, Again, Maybe. Or Maybe Not. Or Not.
Oriental Land: Fantasy Springs Is No Longer on Management’s Interest
Toshiba (6502 JP): Financing Deadline Slips Again as the 3Q Update Looms
Komatsu (6301) | Plenty of Gas in the Tank
Board Independence Is Demonstrated by Whether It Is Aligned with Common Shareholder Goal

StubWorld: Mickey Upstages Keisei Electric

By David Blennerhassett

Keisei Electric Railway Co (9009 JP) is trading “cheap” as Oriental Land (4661 JP) enjoys a zero-Covid revival.
Preceding my comments on Keisei/Oriental Land, are the current setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

MSCI Feb 2023 QCIR Preview: Potential Changes as Review Period Ends

By Brian Freitas

The review period for the February Quarterly Comprehensive Index Review (QCIR) of the MSCI indices ended yesterday. There will be a number of changes in the Asia Pacific region.
Most of the inclusions are in China and the country weight in the MSCI Emerging Markets Index should increase leading to outflows from other markets.
On average, the potential adds have outperformed the potential deletes over the last few weeks. At a glance, pre-positioning appears to be lighter than in the past.

Toshiba (6502) – Funding Mostly Secured, Still, Again, Maybe. Or Maybe Not. Or Not.

The original bid was supposed to be presented fully-funded by 30 September 2022. Then it was early November, then late November, then early December, late Dec, early Jan, end Jan.
Today we find out that The Banks and The Preferred JIP Bidding Consortium will aim to reach agreement by 3 Feb. The Bloomberg article details are newish, and odd.
Shares have deteriorated and vs Peers, they are at their lowest point in many months. And the details do not make me confident this deal is clean yet.

Oriental Land: Fantasy Springs Is No Longer on Management’s Interest

By Oshadhi Kumarasiri

Aided by the Japanese Government’s efforts to rebuild the COVID-ravaged leisure sector, Oriental Land (4661 JP)’s 3QFY23 OP surpassed consensus by more than 35%.
We believe 3QFY23 could be a peak in terms of financial performance for Oriental Land, at least until the opening of the Fantasy Springs.
In addition, the growth story that OLC offered through the expansion of DisneySea, seems to be no longer compelling as the management has simply stopped talking about its progress.

Toshiba (6502 JP): Financing Deadline Slips Again as the 3Q Update Looms

Bloomberg reports that Japan Industrial Partners (JIP), the preferred bidder, has again extended the deadline for securing bank financing of around JPY1.2 trillion (US$8.8 billion).
A new issue has pushed the deadline to 3 February. If JIP manages to secure financing for an offer of around JPY5,100, the next challenge is securing Board support.
The 3QFY2022 update on 14 February needs to avoid further downgrades to keep the deal alive. Toshiba’s multiples are unattractive to peers. Remain on the sidelines for now.

Komatsu (6301) | Plenty of Gas in the Tank

Komatsu Q3 operating profit rose 54% YoY, beating analyst estimates by around 12%
Construction and Mining Equipment sales rose 31% in the quarter, or ~10% on a constant currency basis versus industry volume of -6%
Komatsu shares have sharply lagged the recovery at CAT. We still see significant upside with current P/B of 1.2x

Board Independence Is Demonstrated by Whether It Is Aligned with Common Shareholder Goal

While shareholder proposals, including those from activist investors, should be considered from independent perspective, it’s clear that even companies with high-% independent directors don’t necessarily get along with activist investors.
Board independence is not a question of the number or ratio of independent directors; rather, it is a question of whether independent directors are truly functioning on the board.
If the loss of cash results in missed investment opportunities to expand corporate value, this would conflict with interests of shareholders, so subsequent increases in market capitalization should be verified.

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Jan 31

Daily Brief Japan: Nissan Motor, AXXZIA Inc, SBI Holdings, H2O Retailing, NEC Corp, Nihon M&A Center, Tobila Systems Inc and more

In today’s briefing:

Renault & Nissan “Agree” On New Terms – A Diet Nothing🍔, Exchangeable into Shaq Fingerguns
TOPIX Inclusion: AXXZIA Inc (4936 JP) – Time to Take Profits
JPX-Nikkei 400 Rebal 2023: End-Jan 2023
Japanese Department Stores: An Opportunity to Trade FQ3 Earnings This Week
NEC (6701) | Strong Network Revenues
Nihon M&A: Weak Earnings and Guidance for Full-Year Seems Too Optimistic
Tobila Systems: A Deep-Dive View

Renault & Nissan “Agree” On New Terms – A Diet Nothing🍔, Exchangeable into Shaq Fingerguns

Today, a Nikkei article suggested (after other media suggested last week) that Renault SA (RNO FP) and Nissan Motor (7201 JP) have come to agreement about their new deal.
Post-Close, an announcement. Two striking things about this “agreement” a) it comes many months after they started negotiating, and b) we have few details, and c) we’re missing a bit.
Renault agrees to cap voting rights in Nissan. Nissan agrees to invest in RNO’s EV spinoff, and so far, they agree to strengthen the Alliance. What’s missing is interesting/key.

TOPIX Inclusion: AXXZIA Inc (4936 JP) – Time to Take Profits

By Janaghan Jeyakumar, CFA

Japan-Based skincare and cosmetics maker AXXZIA Inc (4936 JP) announced on 9th November 2022 they were planning to move from TSE Growth to TSE Prime.
Travis Lundy was Bullish on this name as he discussed in AXXZIA (4936 JP) – TOPIX Inclusion Is Likely In February and the stock has gained around 12% since then.
Today after the close, AXXZIA Inc (4936 JP) announced they had received the approval for their Prime Market move in February which could lead to a TOPIX Inclusion in March.

JPX-Nikkei 400 Rebal 2023: End-Jan 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-January 2023.

Japanese Department Stores: An Opportunity to Trade FQ3 Earnings This Week

By Oshadhi Kumarasiri

Two of the biggest department store chains in Japan, H2 O Retailing (8242 JP) & Isetan Mitsukoshi Holdings Ltd (3099 JP) are set to disclose FQ3 earnings this week.
The ones with FQ3 ending in November, J Front Retailing (3086 JP) and Takashimaya (8233 JP) surprised to the upside with 6% and 8% price gains on earnings.
Our analysis indicates that H2O Retailing & Isetan Mitsukoshi could deliver stronger FQ3 results. Thus, we would look to trade Japanese Department Stores before earnings this week.

NEC (6701) | Strong Network Revenues

By Shifara Samsudeen, ACMA, CGMA

We remain bullish on NEC as we believe that the company is one of the key beneficiaries of the shift to standalone 5G
NEC’s Network Services registered double-digit revenue and profit gains in Q3 on the back of growth in 5G equipment sales and IP income.
We believe that the current share price (+4% over the past 12m) and valuation (10x PE, 0.8x PB) do not reflect the positive mid-term outlook

Nihon M&A: Weak Earnings and Guidance for Full-Year Seems Too Optimistic

Nihon M&A Center (2127 JP) reported 3QFY03/2022 results. Revenue declined 9.9% YoY to JPY9.8bn (vs consensus JPY13.6bn) while OP dropped 21.9% YoY to JPY3.2bn (vs consensus JPY6.1bn).
Though there had been an increase in the no. of transactions completed during the quarter, revenue declined due to price pressures.
Share price has declined 22.8% during today’s trade due to weaker-than-expected earnings and we think full-year FY03/2022E guidance is too hard to achieve.

Tobila Systems: A Deep-Dive View

By Steven Chen

This is our second Insight into Tobila Systems – the absolute dominator in the niche of fraud/spam call and message filtering services in Japan;
We like the high-quality, unique assets owned by the company, although capital allocation appears to stand out as a wild card in our formula of long-term shareholder-value creation;
At the current level, we would hold the shares firmly and wait patiently for more opportunistic offerings from Mr. Market to accumulate more shares.

💡 Before it’s here, it’s on Smartkarma

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Jan 30

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

In today’s briefing:

Merger Arb Mondays (30 Jan) – Kanematsu, Toyo, O2Micro, Origin Energy, Warrego, Tyro, Norwest
Looking Forward to Discussion on How to Improve the Quality of Corporate Governance Practices

Merger Arb Mondays (30 Jan) – Kanematsu, Toyo, O2Micro, Origin Energy, Warrego, Tyro, Norwest

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 – Alliance Aviation Services (AQZ AU), Kanematsu Electronics (8096 JP), 21Vianet Group (VNET US), Golden Energy & Resources (GER SP), Origin Energy (ORG AU), 111 Inc (YI US).
Lowest spreads – Essential Metals (ESS AU), Chip Eng Seng Corp (CHIP SP), Nitro Software Ltd (NTO AU), Norwest Energy NL (NWE AU), Conexio Corp (9422 JP), Nippon Steel Trading.

Looking Forward to Discussion on How to Improve the Quality of Corporate Governance Practices

The fact that TSE, which has revised Corporate Governance Code several times, is now discussing improving the quality of corporate governance shows that the governance practices have become a formality.
Regarding the expansion of English-language disclosure, there is need to eliminate the mismatch between the documents that companies translate into English and those that overseas investors demand to be translated.
Asset owners should keep encouraging asset managers to follow Stewardship Code. Appropriate action by asset managers to deal with the BOJ owned ETFs will encourage changes in the companies.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

Jan 29

Daily Brief Japan: Kanematsu Electronics, Kanematsu Nnk and more

In today’s briefing:

Kanematsu Electronics (8096 JP): JPY6,200 Tender Offer from Kanematsu Corporation
Kanematsu Sustech (7961) ¥2250/Share Tender Offer by Parent – Supremely Illiquid But Interesting
Kanematsu Electronics (8096) – ¥6200/Share Tender Offer by Parent – Easy Takeout

Kanematsu Electronics (8096 JP): JPY6,200 Tender Offer from Kanematsu Corporation

Kanematsu Electronics (8096 JP) has recommended Kanematsu Corp (8020 JP)’s tender offer of JPY6,200 per share, an 32.9% premium to the undisturbed price (27 January).
The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the offer has been set to meet the 66.67% ownership ratio.
The tender offer is attractive as it represents an all-time share price high and a premium to peer multiples. This suggests a done deal.

Kanematsu Sustech (7961) ¥2250/Share Tender Offer by Parent – Supremely Illiquid But Interesting

Kanematsu Corp (8020 JP) announced two tender offers late Friday to take out minorities in subsidiaries. One larger, safer deal. One smaller, illiquid, but potentially interesting one.
This is the interesting one. It is being done at the wrong price, and it has investors who might care who have been long-time holders.
This could get interesting. You have a buyer. A target. It’s pretty clean except for shareholder structure. And the buyer has room to pay up.

Kanematsu Electronics (8096) – ¥6200/Share Tender Offer by Parent – Easy Takeout