Japan

• Late last month, Shinko Electric Industries (6967 JP) announced that the JIC consortium Tender Offer due to be launched by end-August would be delayed. Next update? January 2025.
• Everyone was expecting a delay, but that caused the stock to fall. Then tech/AI fell out of bed, Ibiden crashed, then China export restrictions noise/pushback caused further delay.
• I saw a 9% gross spread yesterday and thought “Geez”, that’s a buy.” A day later, it’s 6%. Still wide, still interesting. And that has set a boundary.

• Rakuten is a Japanese conglomerate with a diverse portfolio of businesses, including e-commerce, finance, travel, and mobile telephony.
• Founded during the late nineties global Internet boom, Rakuten has become a ubiquitous brand in Japan.
• The loyalty point system has become a key feature of Rakuten’s business model, connecting its various services together.

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.

• When Bain came out saying they would bid more, with preparation to launch in November, KKR launched early to see if they could get the jump, discussed here.
• The stock popped when the Bain’s bid was obviously serious, and supported by the Founding Family, but it went to Bain’s “5% higher” plus another 5%. I was bearish.
• But I signalled willingness to change my mind if the stock price dropped. It has dropped. 

• Comparing the number of Japanese companies in top 50 global market capitalization and Japan’s GDP as percentage of world’s GDP in 1989, it’s clear that economy and companies didn’t grow.
• Without more Japanese companies that have an edge in profitability, a key focus for long-term global investors, it will not be possible to put long-term investment money into Japanese equities.
• It is assumed that BoJ’s policy of inducing the yen to depreciate through ultra-monetary easing may have in part spoiled company managers and caused them to neglect their corporate efforts.

• Revenue increased by 4.4% YoY to JPY3.4bn, operating profit rose by 40.8% YoY to JPY848mn.
• Revenue from desknet’s NEO Cloud grew 7.5% YoY, while AppSuite Cloud revenue surged 30.6% YoY.
• Total license revenue declined 27.8% YoY, with desknet’s NEO licenses decreasing 22.7% YoY.

• i-mobile reported FY07/24 revenue of JPY18.7bn (+14.1% YoY) and operating profit of JPY3.5bn (+0.7% YoY).
• Consumer Service business FY07/24 revenue was JPY16.0bn (+20.1% YoY) and segment profit JPY3.4bn (+15.8% YoY).
• FY07/25 projections: revenue JPY23.0bn (+22.8% YoY), operating profit JPY4.5bn (+26.8% YoY), net income JPY3.0bn (+21.9% YoY).

• Sales increased to JPY34.0bn (+136.2% YoY), with an operating profit of JPY2.9bn (+84.4% YoY) and net income of JPY1.6bn (+79.3% YoY).
• Wholesale Sales segment saw sales rise by 355.7% YoY and operating profit by 66.6% YoY, with a 7.3% profit margin.
• Real Estate Management segment achieved sales of JPY2.0bn (+62.9% YoY) and operating profit of JPY925mn (+437.0% YoY), with a 45.9% profit margin.

• FY10/23 figures reflect finalized provisional accounting treatment; business profit is JPY2.7bn (+67.9% YoY), revenue JPY131.6bn (+33.0% YoY).
• RENOSY Marketplace improved profit margin through topline growth and fee measures; ITANDI segment profit rose 70% YoY.
• ITANDI business saw ARR reach JPY3.4bn (+36% YoY), with a churn rate of 0.40% and unit economics at 39.0x.

• Terumo Corp (4543 JP) was able to hang in well after the announcement, up until the day or two before pricing date, then the shares were walloped into Pricing. 
• After pricing, they have fallen and erased most of the discount. That’s an opportunity. 
• The shares have underperformed Peers, and there is flow to come. This deal was, as advertised, smaller than it first appeared. 

• Activist investor, Oasis Management, recently disclosed that they had taken a significant 6.3% stake in the company
• I suspect that Oasis don’t need to be overly aggressive with this one. Given the fundamental outlook, we see the financial model delivering double digit earnings growth
• After a strong Q1 report, we expect an upward revision to guidance. The stock is cheap at <11x earnings. We see over 30% upside

• 1Q FY2025/3 results review: On August 9th, 2024, Geechs Inc. (hereafter, the “Company”) announced its 1Q FY2025/3 earnings results.
• Net sales fell 2.0% YoY to ¥5,825 mn, EBITDA rose 7.2% YoY to ¥107 mn, and operating profit rose 175.8% YoY to ¥80 mn.
• The sharp rise in operating profit was attributable to the sale of G2 Studios (previous Game business) at the end of FY2024/3, which prevented 1Q FY2025/3 operating profit from being dragged down by the business as it did in 1Q FY2024/3, when it recorded an operating loss of ¥74 mn. 

• Trial Holdings (5882 JP) raised around US$259m in Mar 2024. Its IPO lockup is set to expire soon.
• TH operates a network of retail stores in Japan that offer one-stop shopping under its everyday low price (EDLP) model.
• In this note, we will talk about the lockup dynamics and possible placement.

• Despite Seven & I Holdings (3382 JP)‘s rejection, Alimentation Couche-Tard (ATD CN) remains prepared to enter collaborative and friendly discussions to focus on finding greater value for 7&i shareholders. 
• Couche-Tard’s options are to return with a revised offer, go hostile or walk away. Couche-Tard will likely test the Board’s resolve by returning with a higher offer.
• The Board’s options are to go through the motions (appointing IFAs), conduct a market check or launch a more aggressive action plan to placate restive shareholders. 

• 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.
• SUNWELS Co (9229 JP) and Macbee Planet (7095 JP) moved to the Prime market in July 2024 and their TOPIX Inclusion events took place at the end of August 2024.
• We currently have CELSYS (3663 JP), Japan Eyewear Holdings (5889 JP), and Core Concept Technologies Inc (4371 JP) in our TOPIX Inclusions pre-event watchlist.

• In the annals of foreign buyers of Japanese tourism-related real estate assets, there have been a few good examples, and several disasters. Yesterday, we got a new suitor for assets. 
• Fortress SPV Ontario GK will attempt to buy out Fukushima-based Joban Kosan (9675 JP) through a double Tender Offer. 
• There is a history here of a bump on an MBO on an associated company. That may have caused it to trade at a premium on Day 1. It’s unrelated.

• Itochu’s Textile division continues to execute the directive from its CEO to expand reach and coverage in the fashion and lifestyle sectors, with sports one of the major target categories.
• It will completely absorb Descente as part of this plan, meaning the brand is likely to become one of the largest in the portfolio.
• The ongoing tender offer will likely succeed giving Itochu a bargain and investors no stake in the future.

• If a company seeks immediate effects to improve capital profitability, it’ll return cash to shareholders because it’ll be years before the company can recoup it by making more investments now.
• Even companies that have increased valuations by raising their capital profitability can improve it by reducing their cash on hand and policy shareholdings, which are still too large.
• Companies with low capital profitability and low valuations have to gain investor confidence through quarterly earnings disclosures by demonstrating that their disclosed goals are achievable.

• CYND Co., Ltd. is a dominant player in the reservation management software for beauty salons in Japan, with 90% of its revenue coming from recurring contracts
• The company has high barriers to scale and has acquired its second largest competitor, effectively eliminating competition
• CYND has the potential to significantly increase its revenue over the next decade, led by its co-founders with strong insider ownership, and is currently valued at JPY 4.1bn with a projected net 10-year IRR of 24.1% for Sun Mountain.

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

• Revenue: JPY1.6bn (-20.2% YoY), Operating profit: JPY36mn (-78.3% YoY), Recurring profit: JPY56mn (-76.4% YoY), Net income: JPY21mn (-88.0% YoY).
• 1H progress against revised full-year forecast: 47.8% for revenue, 32.5% for operating profit, 49.8% for recurring profit, 31.3% for net income.
• Cost of revenue ratio rose by 10.1pp YoY to 75.0%, SG&A expense ratio decreased by 4.4pp YoY to 22.7%.

• Revenue grew 11.0% YoY to JPY24.3bn, supported by order growth in Overseas Solutions and yen depreciation.
• Operating profit of JPY360mn (+36.2%) due to lower recruitment costs and deferred restructuring expenses.
• Revised FY01/25 forecast: Revenue JPY51.0bn, Operating profit JPY1.8bn, Recurring profit JPY1.8bn, Net income JPY322mn.

• Late last week, the Nikkei reported Seven & I Holdings (3382 JP) would send a letter to Couche-Tard saying they reviewed ACT’s Proposal and deemed it “inadequate.” Indeed it was.
• 7&i then published the Board’s letter, saying 7&i remained open to discussions but ACT’s Offer “grossly undervalued” 7&i’s intrinsic value and lacked in other areas. ACT responded with a “letter.”
• But ACT’s “letter” was a press release aimed not at 7&i but the public. 7&i released a terse response today. ACT is the suitor. It needs to act like it.

• A group of shareholders are looking to raise around US$1.36bn from selling ~5% stake in Terumo Corp (4543 JP).
• We have covered the background of the deal in our earlier note, Terumo Placement – US$1.4bn Secondary Selldown, Buyback Should Aid Deal Dynamics.
• In this note, we talk about the updates since and look at the performance of some of the past large Japan deals.

• Since the US$1.4 billion secondary placement announcement, Terumo Corp (4543 JP)’s shares are down 3.5% from the undisturbed price of JPY2,771 per share (29 August).
• Looking at recent large Japanese placements is instructive to understand the potential trading pattern. So far, Terumo’s shares have followed the pattern of previous large placements.
• The offering will likely be priced on 10 September. Despite Kokusai and Honda’s disappointing performance, the average large Japanese placement tends to generate positive returns.

• Last Friday, Seven & I Holdings (3382 JP) issued a response to Alimentation Couche-Tard (ATD CN)’s non-binding acquisition proposal.
• At $14.86 per share, Seven & I’s special committee stated that the offer significantly undervalues the company.
• The response also highlighted that the proposal fails to address the numerous and substantial regulatory challenges the transaction would encounter from U.S. competition authorities.

• Visibility is poor. Following excellent 1Q results, management raised FY Mar-25 sales guidance by 14%, operating profit guidance by 53% and net profit guidance by 57%. 
• Strong demand for AI processors and memory should support more than 35% growth in IC tester revenues and a doubling of operating profit in the two years to Mar-26.
• The shares have dropped to the bottom of their recent trading range, but are still selling at more than 30x our EPS estimate for next fiscal year.

• We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads: Yichang HEC Changjiang Pharma (1558 HK), Canvest Environmental Protection Group (1381 HK), Shinko Electric Industries (6967 JP), Malaysia Airports Holdings (MAHB MK), Greatview Aseptic Packaging (468 HK). 
• Lowest spreads: Fuji Soft Inc (9749 JP), Tohokushinsha Film (2329 JP), Second Chance Properties (SCE SP), Fancl Corp (4921 JP), Descente Ltd (8114 JP), C.I. TAKIRON Corporation (4215 JP). 

• The most significant reason for decreasing parent-subsidiary listings is the presence of overseas investors who have long pointed out the problems with this issue. This TSE’s request will support them.
• The issue of parent-subsidiary listing is whether the listed parent should incorporate the profitability of equity-method affiliate/listed subsidiary to enhance its profitability, or effectively use its assets by divesting them.
• If extending to equity-method affiliates, there are many companies that haven’t made progress in reviewing their business portfolios, and this is where the fundamental issue of ROE not increasing lies.

• I tally 40 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• Two new deals were discussed this week: Offers for Virgin Money UK Plc (VUK AU) and PSC Insurance (PSI AU).
• Key updates took place on Rex Minerals (RXM AU), Namoi Cotton (NAM AU), CPMC (906 HK), China TCM (570 HK), Seven & I (3382 JP), and Fuji Soft (9749 JP) . 

• Buy dips on the possibility that 3DIP would not agree to Bain. Otherwise, at ¥9,000 Fuji Soft (9749 JP) is a buy, and at ¥9,500, it’s probably a sell near-term.
• Drilling down into its balance sheet uncovers additional value for Jardine Matheson Holdings (JM SP); but not enough to move the needle
• Exedy Corp (7278 JP) completed its buyback. Murakami Group bought more. The stock (pro-forma) is at 0.62x book, 0.54x book for the non-cash portion. There’s LOTS of cash left.

• While cash on hand is high, many companies have not been able to improve their return on capital, so more companies are expected to announce shareholder returns, including share repurchases.
• The change in awareness of companies can be attributed largely to the changing environment of high foreign ownership and TSE requests.
• Since it takes time to raise the profit margin, and it’s not easy to identify CapEx opportunities, the measures to improve ROE will reduce policy shareholdings and cash on hand.

• KKR has launched its deal early to make life difficult for Bain, who has Founding Family support, due diligence, and another hearing with the company to make a Binding Bid.
• The combination of Bain’s PR on 3 September and the new documents out late last night from KKR and Fuji Soft show a picture of KKR/3D somehow acting coercively.
• This is something of a mess. It should become a case study for lawyers/advisors of what NOT to do when a large PE firm approaches you. Expect a bun fight.

• Pasco Corp (9232 JP) has recommended a tender offer from Secom Co Ltd (9735 JP) and Itochu Corp (8001 JP) at JPY2,140, 31.4% premium to the undisturbed price of JPY1,629.
• The tender offer runs from 6 September to 22 October (30 business days), with payment commencing on 28 October. It represents a 10-year high. 
• This a done deal as the offeror represents a 71.66% ownership ratio, higher than the two-thirds of voting rights required to implement a squeeze-out through share consolidation.  

• Toyota Kirloskar, Toyota Motor‘s 89%-owned India JV, recorded a 65% rise in revenues and 240% jump in profits to around USD575 million in FY2024 following 48% increase in units sold.
• The company has continued to maintain its strong growth momentum in FY2025 YTD, with wholesale volumes up 36% YoY.
• Successful launch of rebadged Suzuki models, ramped-up production and customer-friendly initiatives have supported Toyota’s accelerated volume growth in India.

• DWTI announced that the first transplant was performed in a domestic Phase II clinical study of DWR-2206 (Indication: bullous keratopathy, see Note 1 below), a regenerative medicine cell product being developed jointly by DWTI and ActualEyes Inc., and as a result of the follow-up monitoring, the safety of DWR-2206 has been confirmed in order to proceed to a second and subsequent transplants.
• This study is being conducted to evaluate the safety and efficacy of DWR-2206 transplants in patients with bullous keratopathy.
• The first transplant took place in July 2024, and the patient’s progress since the transplant has been smooth. 

• Q1 FY3/25 results reported 10.5% sales growth YoY and declining operating losses, driven by a combination of treatment service growth in the Americas and cost reduction efforts.
• Operating units of the key HAL Medical Lower Limb Type grew 8.3% YoY to 481 units worldwide, indicating moderate but sustained growth YoY at home and overseas.
• Overseas sales made up 71% of the total, demonstrating the company’s focus on geographic expansion. 

• Today, the Nikkei Index Committee decided to delete Nippon Paper (3863) for low liquidity, and DIC (4631) for sector over-representation, and added Nomura Research Institute (4307) and Ryohin Keikaku (7453).
• The only auto-delete was Nippon Paper. The DIC delete was “discretionary.” But they could have done a third. Why did they not do a third change? I do not know.
• The whole shebang should be ¥350-375bn a side. At current price, Fast Retailing is set for another capping (selling) event in March 2025. And there is one shoo-in then too.

• Nomura Research Institute (4307 JP) and Ryohin Keikaku (7453 JP) will replace Nippon Paper Industries Co L (3863 JP) and Dic Corp (4631 JP) in the Nikkei 225 (NKY INDEX). 
• Fast Retailing (9983 JP)‘s CPAF will drop from 3 to 2.7 and there will be further selling in March 2025 as the CPAF drops to 2.4 (or possibly even 2.1!) 
• Passives will need to buy 7-15x ADV (13-14% of real float) in the adds and sell 2.7-6.5x ADV in the deletes. There is a big reverse funding trade too.

• In response to the potential Bain competing offer for Fuji Soft Inc (9749 JP), KKR has waived the precondition and launched its offer at unchanged JPY8,800 per share.
• Bain’s due diligence ends on 20 September, and it aims to submit a binding proposal in October. This timeline will thwart KKR’s offer, which closes on 21 October.
• KKR’s offer launch at unchanged terms is delaying the inevitable and will have to bump to succeed. A potential bidding war is likely to push the offer price to JPY10,500. 

• The Couche-Tard “friendly bid” raises more questions than it answers: Is it real? What does CT really want? Can it afford it? Will the Japanese government let it through?
• We remain sceptical about a bid – if it happens – succeeding. Either way, Seven & Eleven Japan looks to be the much better retailer.
• It has been selling 25-40% more than competitors in the world’s toughest CVS market and looks set to extract more value in Japan/overseas than anyone else could so why sell?

• Sony launches Soneium, a blockchain platform developed with Startale Labs, as a Layer 2 Ethereum solution to enhance transaction speed and scalability.
• Soneium aims to bridge Web2 and Web3, leveraging Sony’s vast intellectual property in entertainment and technology for broad consumer adoption.
• Backed by Sony’s resources, Soneium focuses on user-friendly blockchain technology, offering financial and technical support through its Soneium Spark incubation program.

• The Sep24 Nikkei 225 Review Results are out, discussed in Sep24 Nikkei 225 Review Results:  A Slightly Baffling 2 IN, 2 OUT. 
• That lets us move to Mar25 Nikkei 225 Rebal predictions. For the moment, I see 2 IN and 2 OUT, again. 
• And at the moment, another Fast Retailing capping exercise looks likely, for roughly US$3bn a side to trade.

• While cash flow has improved, companies haven’t found promising investment opportunities. Continuation of a rigid dividend policy is another factor that further increases cash on hand.
• Given that the already high level of cash on hand is expected to build further in the current fiscal year, there is room to increase shareholder returns considerably.
• For many companies, it is not easy to find new sources of investment other than through M&A, and shareholder returns are the most effective way to reduce cash.

• The Company specializes in temporary construction equipment and offers a one-stop service from development and manufacturing to sales, rentals, design and installation, as well as management and logistics.
• Its flagship product, the next-generation scaffolding “Iq System,” was launched in 2014 and excels in safety and ease of use.
• The Company is transitioning its business to a platform-based model aimed at generating stable income with reduced rental asset intensity.

• On August 7, 2024, Migalo Holdings Inc. (hereafter, the Company) announced its 1Q FY2025/3 earnings results.
• Sales declined 10.6% YoY to ¥13,671 mn, and operating profit fell 56.9% YoY to ¥792 mn.
• The declines in both sales and profit were anticipated, primarily due to the concentration of new property deliveries in the DX Real Estate business during the same period last year. 

• In late May, Toyota Group member Aisin (7259 JP) announced it would sell its 37% stake in Exedy Corp (7278 JP) . The market dropped. But that was the opportunity.
• On 30 May, I said “Buy the deal, buy in the market. It’s cheap and vulnerable.” It’s up 21.5% since (the day after). Peers are down 15-20%. 
• The company completed its buyback. Murakami Group bought more. The stock (pro-forma) is at 0.62x book, 0.54x book for the non-cash portion. There’s LOTS of cash left. 

• Nikkei reports that Bain will launch a competing tender offer for Fuji Soft Inc (9749 JP) around JPY9,200-9,300 per share, around 5% higher than KKR’s offer. 
• The Board responded that Bain submitted a non-binding proposal on 26 July. The special committee will consider its feasibility if a binding proposal is submitted. 
• KKR has three options to respond to a higher Bain offer: revise it, launch a hostile offer at unchanged terms, or walk away. The first option is the most likely.

• The original Target Opinion Statement for KKR’s bid at ¥8,800/share offered a glimpse at a non-binding, questionably feasible offer at a slightly higher price, which 3DIP might have rejected.
• That was apparently Bain, and now we know Bain has consistently had the higher price. Fuji Soft Inc (9749 JP) handled this whole process badly, perhaps cowed by 3DIP.
• Now the cat is amongst the pigeons. This is less hostile than it looks IMO. The market thinks it will be a bun fight. 

• Simply Wall Street published an article on Aug 20, 2024, suggesting the fair value of Nextage was ¥1,772 or 16% below the previous day’s closing price.
• Yet, on the Simply Wall Street website’s stock page for Nextage, updated on August 26, they calculate the fair value at ¥5,726, or 189% above the close on Aug 19.
• Both cannot be right. Here’s an interesting window into how markets mis-price stocks.

• DWTI held a 1H results briefing via ZOOM webinar on Friday 8/23 at 13:30, hosted by President Hidaka.
• Several important points came up in his answers to questions from analysts during Q&A at the end of the briefing.
• 1) Dosing in H-1337 PIIb trials in the US has been completed, and in the year-end publication of top-line results, the key expectation is to show non-inferiority of ROCK inhibitor H-1337 (1.0% once daily) versus existing beta blocker Timolol (0.5% twice daily).