Japan

• Just pre-close on 2 July, Reuters carried an article suggesting a ¥500bn secondary offering in Honda Motor (7267 JP) as insurers sold. The stock fell 4% in minutes. 
• Honda semi-confirmed but it took two days to get to the details, now out. The stock climbed in the meantime. 
• At launch, this deal is two-thirds covered by buyback + passive demand but the supply is heavily-weighted to retail. Cheaper than it looks, lots of moving parts. Read the details!

• Small cap Japanese manufacturer and purveyor of apparel Daidoh Ltd (3205 JP) has consistently been a target for value investors. In late 2022, Strategic Capital went over 5%.
• They have bought more, and as of end-March, they declared 24.85% of TSO (28% of voting rights), but they have 33%. They made proposals for the AGM. They won one. 
• Now Murakami-san has bought in, going over 5%. This gets interesting. Together they have 39.4% as of last week, and probably more now. That should get them 50+% next AGM/EGM.

• On 2 July 2024, nursing care operator SUNWELS Co (9229 JP) announced a sale of Treasury shares and newly-issued shares, and with it, a move to TSE Prime (therefore TOPIX)
• The stock, of course, popped. The stock starts with VERY low float because the CEO and his company own 64% of shares out ex-treasury. 
• The offering is much larger than the TOPIX inclusion, so this is really more about the growth story.

• Honda Motor (7267 JP) has announced a secondary offering of up to 298.9 million shares (including overallotment). At the close, the offer, including overallotment, is worth JPY535 billion (US$3.3 million).
• The offering is another sign that the unwinding of cross-shareholdings is catching pace as part of Japan’s corporate governance reforms.
• Looking at recent large Japanese placements is instructive for understanding the potential offer price. The pricing date will fall between 17 and 22 July (likely 17 July).

• A group of shareholders aims to raise up to US$3.2bn via selling around 5% of Honda Motor (7267 JP) .
• The possibility of such a selldown was flagged earlier in the week by Reuters. Thus, the deal is well flagged.
• In this note, we will talk about the placement and run the deal through our ECM framework.

• Timee Inc (215A JP), a leading part-time job platform in Japan, is seeking to raise up to US$286 million. Book-building runs from 9 to 23 July.
• In Timee (215A JP) IPO: The Bull Case, we highlighted the key elements of the bull case. In this note, we outline the bear case.
• The bear case rests on rapidly slowing growth, an industry-low FCF profile, and a business model predicated on access to large funding and significant share option dilution.

• Denso Corp (6902 JP), Toyota Motor (7203 JP) and Toyota Industries (6201 JP) are looking to raise US$1.1bn from selling some of their stakes in Aisin (7259 JP).
• We have covered the background of the deal in our earlier note, Aisin Corp Placement – US$1.1bn Selldown by Toyota and DENSO.
• In this note, we talk about the updates since and look at the performance of some of the past large Japan deals.

• Digital Arts (2326 JP) , based in Japan offers internet security software and appliances  globally. The company also provides consulting services related to information security.
• The company’s share price has moved up by more than 30% over the last 30-days driven by DA’s decision to deconsolidate its DAC business.
• Given the high-cost nature, we welcome Digital Arts’ move to deconsolidate the DAC business as it should help improve the company’s profitability.

• Tsubakimoto Kogyo Co., Ltd., (hereafter, the Company) is an industrial equipment–related trading company with a history that goes back more than a century.
• While primarily handling power transmission products, such as motors and chains, the Company also handles factory automation (FA) equipment, including conveyors for automobiles and liquid crystals.
• Furthermore, the Company is expanding into other industrial equipment parts, including actuators, such as cylinders, for semiconductor-manufacturing equipment, and conveyor equipment in factories, inspection equipment, and various types of meters. 

• Takamiya (hereafter, the Company) announced its FY24/3 full-year earnings results on Friday, May 10, 2024 after the market closed.
• Sales, operating profit, and net profit were below its initial estimates, except for ordinary profit.
• However, a significant increase in profits were achieved thanks to the strong performance of its high-margin rental business.

• Timee Inc (215A JP), a leading part-time job platform in Japan, is seeking to raise up to US$286 million. Book-building runs from 9 to 23 July.   
• Timee’s app allows users to work shifts as short as one hour at restaurants, convenience stores, and hotels, with quick payment for their work.   
• The bull case rests on favourable market trends, best-in-class revenue growth, good retention rates, credible growth drivers, and top-quartile EBITDA margins.

• When this deal was announced, it was light. But the timing, JSR influence, large-ish float, ensured FUD would make this trade wide. It traded wider.
• Nearly 6mos ago, Shinko had much-underperformed peer Ibiden, meaning downside gap risk from undisturbed was negative as spreads were wide. I reco’d a buy. Then 16+wks ago, recommended taking profits.
• Shinko had outperformed Ibiden, gross spreads had narrowed 5+% on JSR approval. Gross spread is now 4.6% but time is shorter so annualised is 10+% even out to December launch.

• Following up on our earlier cross-shareholding work, in this note we look to summarize our work so far by looking at where most of the selling will likely come.
• Of the seven companies that we have looked at so far, collectively they have around US$102bn worth of shares to sell in 118 companies. 
• Of these, they have a combined stake of over US$1bn in 23 companies.

• On July 2, Eli Lilly & Co (LLY US) has received FDA approval for its Alzheimer’s disease drug Kisunla, which will compete head-on-head with Eisai Co Ltd (4523 JP)‘s Leqembi.  
• Efficacy and indications of both the drugs are similar. Price comparison is tricky. However, Kisunla can be stopped when amyloid plaques are removed, which is not the case for Leqembi.
• Eisai is not expected to face immediate competition and should comfortably meet Leqembi FY25 revenue target of ¥56.5B, including ¥43.5B from the U.S. Recently, Leqembi has been launched in China.

• The reason why investor engagement is effective is in the exercise of voting rights. Engagement is considered to have been effective around 2014, when foreign ownership exceeded 30%.
• Engagement is generally effective in the funds entrusted to GPIF, according to the results of the study. GPIF should raise fees to allow investment managers to engage in fruitful engagement.
• This tends to be a generic question for passive funds. If we expect engagement to be more effective in the future, we need to increase the number of active funds.

• Today just before the close, Reuters came out with an article saying Japan’s four major insurers and some financial institutions would offer ¥500bn of shares in a secondary offering.
• That implies about 275-280mm shares (insurers hold ~195mm). In May, Honda announced a ¥300bn buyback with earnings, with nothing done so far. 
• The supply/demand dynamics here are key. There are a lot of moving parts over time. Honda is cheaper than it looks but there are moving parts there too.

• This month (June) saw 1,673 Corporate Governance Reports filed and 5 new “Mgmt Conscious of Capital Cost/Stock Price” policies filed. 
• We created a tool show every report, provide links to every document, and now a new diff file tool. Put in a name, see the difference between the Old/New Reports.
• We hope this took will help. It is designed to be a shelf reference. We update the tool once a month, a couple of weeks ahead of the TSE.

• Domestic Uniqlo SSS (including e-commerce) were +14.9% in June. Positive
• Impressive +8.1% increase in customer traffic and +6.3% gain in per-customer spend
• I have a bearish view on Fast Retailing due to rich valuations (25x EV/EBIT). However, the share price may perform well in the run up to the Q3 report.

• In Q1 FY02/25, Daiseki reported sales of JPY16.7bn (-6.6% YoY), gross profit of JPY5.9bn (-1.1% YoY), and operating profit of JPY3.9bn (-0.7% YoY).
• Daiseki Co.’s sales increased 7.0% YoY, while DES’s sales fell 28.4% YoY, leading to a consolidated sales decrease.
• Consolidated operating profit for Q1 decreased by 0.7% YoY to JPY3.9bn, with OPM rising 1.4pp to 23.4%.

• The problem with cross-shareholdings is not simply that they weigh heavily on ROE and ROA improvement, but also that they do not create tension in management.
• The degree of seriousness of the company’s efforts to reduce policy shareholdings is a measure of the improvement in return on capital. The level of seriousness must be monitored.
• The fact that there are inappropriate entries in the items required of prime market listed companies indicates that many companies are not suitable for prime market listed companies.

• Palliser’s proposal failed to meet the challenging two-thirds threshold at the AGM. Given the ownership landscape, this outcome was anticipated.
• Palliser nearing 50% approval at Keisei’s AGM could signify a triumph, potentially leading to significant pressure on management and a positive shift in share price performance.
• Keisei Electric Railway Co (9009 JP)‘s valuation, now attractively low post a 33% drop and with a potential OP guidance hike, presents minimal downside at a 26.0x EV/OP multiple.

• Nine months have passed since Aisin announced a transformative MTP. Investors remain sceptical that it will deliver higher returns. 
• Improving margins on hybrid transmissions, new products for BEVs and better capital allocation could deliver 70% upside for investors.
• The key risk is the assumption that operating margins can rise above 8% versus the historical average of 5%. 

• Today, Toenec Corp (1946 JP) – an integrated facilities company 50+% owned by Chubu Electric Power Co (9502 JP) announced Chubu EPCO would sell down 7.7% to go to 43%+.
• This is surprising. It suggests there are more selldowns to come. It’s also “big” at 88 days of ADV and about 26% of Max Real World Float (85% retail).
• This is an odd sell-down. Chubu EPCO obviously doesn’t want to buy it in. That means overhang for years.

• 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 provider in August every year. The reference period for the August 2024 index rebal event is now complete.
• In this insight, we take a look at our final expectations for ADDs and DELs.

• Toyo Corporation is a trading company specializing in measurement technologies.
• With several initiatives and strong structural demand in the electric vehicles space in particular, we expect the company to achieve higher revenue and profitability.
• Higher recurring revenue and proprietary product ratios will support a margin improvement in the future. 

• Operating profit for 1Q (Jan-Mar) FY2024/12 was ¥985 mn, already achieving 65.7% of progress in 1Q against the full-year target.
• Reason: a steady growth in programmatic advertising business including the collaboration business with Dentsu and the drastic cost reduction implemented in 2023 helped, while the bottoming out of reservation-based advertising business was not yet recognized in 1Q FY2024/12.
• In addition, the phasing out of the use of third-party Cookies in Google Chrome, which was included in the initial performance plan as a downside risk, has been postponed to 2025 or later. 

• For the month of June 2024, 8 new transactions (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$6bn.
• The average premium for the new transactions announced (or first discussed) in June was ~52%. The average premium YTD is ~47%. 
• This compares to the average premium for transactions in 2023 (117 transactions), 2022 (106), 2021 (165), 2020 (158), and 2019 (145 ) of 39%, 41%, 33%, 31%, and 31% respectively.

• Timee Inc (215A JP) is looking to raise US$290m from its Japan IPO. The IPO will be a 100% secondary selldown by existing shareholders.
• Timee operates an on-demand staffing platform that connects part-time jobseekers with businesses in Japan. 
• In an earlier note, we looked at the firm’s past performance. In this note, we undertake a peer comparison.

• While it’s commendable that more companies are publishing their skills matrices, it’s not enough to verify that the skill items are useful in expanding the value of the company.
• Since management strategies vary from company to company, the skills required to formulate and execute a company’s strategy are not likely to be the same as those of other companies.
• Director candidates should be selected based on the skills needed to expand the value of the company in future and skills that complement the skills lacking in the current directors.

• Aequitas Research’s weekly update on the IPOs, placements, lockup expiry and other ECM linked events that were covered by the team over the past week.
• On the IPO front, we looked at the upcoming mega-listing for Hyundai Motor India.
• On the placement front, the week was dominated by the cross-shareholding unwinds in Aisin (7259 JP) and Mitsui & Co Ltd (8031 JP). 

• No surprise: Keisei Electric Railway (9009 JP) shareholders voted down Palliser’s proposal. If the vote was close, Palliser may ups its rhetorical game, and takes a harder stance.
• Argyle failed to boot one CMCDI (133 HK) director. They’ll next target the management agreement renewal; and agitate the company buy back 20% of shares outstanding at 90% of NAV.
• The Offeror now has 90.16% in Great Eastern Holdings (GE SP) – so this will get suspended at the close of the Offer.

• In FY03/24, revenue was JPY97.0bn (+3.9% YoY), operating profit was JPY1.6bn (+103.5% YoY), recurring profit was JPY2.1bn (+61.6% YoY), and net income attributable to owners of the parent was JPY1.5bn (+19.3% YoY). Information Security earnings expanded due to a recovery in demand for transportation IC cards as inbound demand increased with the end of the COVID-19 pandemic.
• On the other hand, operating loss in Information Communication increased due to lower demand for publication printing.
• Kyodo Printing’s full-year forecast for FY03/25 calls for revenue of JPY104.0bn (+7.2% YoY), operating profit of JPY3.1bn (+96.6% YoY), recurring profit of JPY3.6bn (+72.8% YoY), and net income attributable to owners of the parent of JPY3.3bn (+117.4% YoY).

• The Nikkei 225 Index rallied last week, and closed the week up.
• Although slightly overbought, our models are not pointing to a SHORT opportunity here.
• If the index pulls back this coming week, it may be a good idea to BUY, in order to take advantage of a possible reprise of the rally.

• Today (27 June 2024) after the close, Aisin (7259 JP) announced three Toyota Group companies (Toyota, Toyota Industries, and Denso) would sell shares in Aisin in a ¥180bn offering.
• This is ALL of Denso’s holdings, 63% of Toyota Industries stake, and ~12% of Toyota’s stake. Separately, Aisin announced a 17mm share (6.3%) ¥100bn buyback and a 3:1 split Oct1.
• The recent yuho shows us the progress of Aisin’s promised selldown of crossholdings. There are three large chunks left. One is easy. The climb to capital allocation credibility easier too.

• Denso Corp (6902 JP), Toyota Motor (7203 JP) and Toyota Industries (6201 JP) are looking to raise US$1.1bn from selling some of their stakes in Aisin (7259 JP).
• While the deal appears well-flagged, given that it is part of the cross-shareholding unwind theme in Japan, the timing of such a selldown isn’t always certain.
• In this note, we will talk about the placement and run the deal through our ECM framework.

• Aisin (7259 JP) has announced a secondary offering of up to 38.9 million shares (including overallotment) and a buyback worth a maximum of JPY100 billion or 17 million shares.
• Denso Corp (6902 JP), Toyota Industries (6201 JP), and Toyota Motor (7203 JP) are the selling shareholders. The offering aims to reconfigure the company’s shareholder mix and reduce cross-shareholdings.
• Looking at recent large Japanese placements is instructive for understanding the potential offer price. The pricing date will fall between 8 and 10 July (likely 8 July).

• Timee Inc (215A JP) is looking to raise US$290m from its Japan IPO. The IPO will be a 100% secondary selldown by existing shareholders.
• Timee operates an on-demand staffing platform that connects part-time jobseekers with businesses in Japan.
• In this note, we will talk about the not so positive aspects of the deal.

• The new excitement of the MS&AD story is the company’s commitment to sell down all of its cross-shareholdings and to use proceeds to fund growth and dividends.
• ROE is already far higher now than in recent years, and this can continue with rising dividends.
• Monthly insurance sales figures give a good window on the core business, with growth rates in May YoY and YTD accelerating.

• Japan’s rising defense budget and military collaboration with the US and Europe should support a high level of orders for the foreseeable future.
• Defense is the growth driver, but other divisions should hold up well due to the ongoing rationalization of operations.
• Profits should rebound this year and rise further in FY Mar-26, bringing the P/E down to 9X or less. The weak yen is a large positive. 

• The company’s targets are underwhelming given the opportunity but low expectations built in
• A revamped strategy to increase profitability and shareholder returns is “radical” for this old-school company
• Execution is key for certain parts of the plan, but the market can do the rest

Softbank Group (SBG) has launched a four-part benchmark-sized bond offering comprising USD and EUR notes. The proceeds will mainly be used for debt repayment, including the redemption of foreign currency-denominated bonds, as well as for general corporate purposes, including the maintenance of a cash position for the redemption of outstanding notes due over the next two years along with new investments. In particular, SBG will redeem its USD 766.8 mn 4.75% 2024 bonds (due September) early at par.

• The reversal of foreign and cross-held shares in shareholding ratio is the main catalyst for today’s change. Companies with high foreign ownership gradually accepted the proposals of overseas investors.
• The issues of low profit margins, high policy shareholdings, excess cash on hand, and consequently low ROE are still unresolved in many companies, while some companies did successful through engagement.
• More companies will seek compromise with shareholders by enhancing shareholder returns in the face of the fact that the gap between cost of capital and return on capital wasn’t filled.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• New World Development
• Softbank Group

• Timee Inc (215A JP) is looking to raise US$290m from its Japan IPO. The IPO will be a 100% secondary selldown by existing shareholders.
• Timee operates an on-demand staffing platform that connects part-time jobseekers with businesses in Japan.
• In this note, we will talk about the positive aspects of the deal.

• Two years ago, generic pharmaceuticals co Sawai Group Holdings (4887 JP) traded at 10x PER, 6% ROE, and far below book. 10mos ago the price got back to 1x PBR.
• By then, their US sub had partly been put into “Current Assets AFS” as it was for sale. By Dec23, it was completely there. In Jan, a “business review” announcement.
• The US business sale led to a loss, but growth this year, and a new MTMP in early June. Monday, we got a HUGE buyback announcement. Today, an 8+% pop.

• Otsuka Holdings (4578 JP) announced FDA acceptance of indication expansion filing for Rexulti for the treatment of post-traumatic stress disorder. The FDA action date is February 8, 2025.
• Due to impairment loss associated with termination of a pipeline asset, the company has reduced operating and net profit guidance for 1H24. However, 1H24 revenue guidance has been raised.
• 2028 revenue is expected to reach ¥2.5T, an increase of ¥480B from 2023 results, that too after absorbing the negative impact of ~¥310B for loss of exclusivity of core drugs.

• Revenue: JPY3.9bn (-4.1% YoY); Operating loss: JPY133mn; Recurring loss: JPY39mn; Net loss: JPY759mn.
• Revenue by product type: Adult diaper machinery JPY887mn (-48.8% YoY), Sanitary napkin machinery JPY1.1bn (+82.7% YoY).
• Gross profit margin rose to 18.0% from 12.9%; Net income improved due to JPY534mn gain on sale of securities.

• Cover Corp, a leading talent management company in the rapidly growing VTuber industry.
• They’re considered the most prestigious agency and should attract the best talent.
• Superior Underlying Performance Metrics: Cover boasts superior key performance indicators (KPIs) compared to their main competitor Anycolor, including higher engagement metrics like subscribers, hours watched, and viewership.

• For companies facing challenges in maximizing sustainable shareholder returns, it is not a bad idea to rethink management strategies for corporate value growth in the quiet environment of going private.
• MBOs began to attract attention as managers became more aware of the listing costs. TSE’s request last March was the product of making companies even more aware of the costs.
• It is not easy for a company that has not been recognized in the marketplace for many years to increase its stock valuation in a short period of time.