Japan

• The last two reviews have been announced on the second business day of the month of the review. The one before that on the third business day.
• The review could be announced today or tomorrow. Wednesday would seem to be “late.”
• There are still questions about implementation – thus “care” in previous insights. Here I explore the possibilities/probabilities/issues around the edges. And a Dark Horse which may be lighter than thought.

• June/July/August saw 1,673/825/202 new Corporate Governance Reports filed and 8/5/9 new “Mgmt Conscious of Capital Cost/Stock Price” policies filed, respectively. The TSE’s very simple tool comes in 15 days.
• Our tools show every report, links to every document, and now a new diff file tool. input a name, see the difference between the Old/New Reports. We hope it helps.
• This tool is designed to be a shelf reference. We update it once a month, and every CorpGovReport and new “Management Conscious” report updated since a CGR update is here.

• Fraud occurs regardless of the market on which the company is listed or the size of the company. Even if corporate governance is superficially in place, fraud will repeat itself.
• If anything can deter the occurrence of scandals, it is diversity. It is necessary to create an organizational environment that accepts different values and allows people to voice their opinions.
• In many cases, companies that committed fraud aren’t delisted, and management doesn’t take responsibility. There continues to be a bad tradition in which the whistleblower is blamed for the fraud.

• Earnings rebounding – Q1 FY3/25 results were positive with the company demonstrating sustained double-digit sales growth YoY, and strong underlying OP growth of 53.2% YoY.
• Reported OP grew 633.7% YoY, a positive optic related to a one-time reversal of contingent consideration stemming from the acquisition of Zelto Inc.
• Although the market environment remains challenging Overseas and investment into AI services lowered margins in the Marketing SaaS business, the earnings outlook remains positive given the company targeting positive OP in H2 FY3/25 for the Marketing SaaS business, and strengthening seasonality in advertising demand. 

• 1H FY2024/11 Earnings result summary MORITO (hereafter, the Company) posted consolidated net sales of ¥23,749 mn (-1.7% YoY), operating profit of ¥1,483 mn (+13.7% YoY), ordinary profit of ¥1,565 mn (+7.3% YoY), net profit of ¥1,393 mn (+6.5% YoY), which showed a decrease in revenue and an increase in profit.
• The Company achieved record high 1H operating profit and ordinary profit for the third consecutive year.

• For FY2024/11, the Company forecasts net sales of ¥51.0 bn (+5.1% YoY), operating profit of ¥2.6 bn (+5.5% YoY), ordinary profit of ¥2.8 bn (+1.0% YoY), and net profit of ¥2.3 bn (+3.7% YoY). 

• On 30 August, 7&i shareholder Artisan Partners (holder since 2019, now at 1%) wrote an open letter to the Board of Directors of Seven & I Holdings (3382 JP) 
• There are several comments in bold. “It is imperative that the board of directors negotiate with ACT immediately to achieve the best possible outcome for shareholders” is one.
• The letter is a bit preachy, a bit fluffy, and a bit misleading in parts. But it requests the Company brief shareholders on the negotiations by 19 September 2024. 

• Toyota Motor (7203 JP) aims to raise around US$190m via selling over a 4% stake in Hamamatsu Photonics Kk (6965 JP).
• This is another cross-shareholding unwind and hence, won’t be a huge surprise. Although given the recent share price weakness, the timing appears peculiar.
• In this note, we will talk about the deal dynamics and run the deal through our ECM framework.

• I tally 42 – 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: the Taishin Financial Holding (2887 TT) / Shin Kong Financial Holding (2888 TT) merger; and Silverlake Axis (SILV SP)‘s hybrid Offer. 
• Key updates took place on Huafa Property Services (982 HK), Shanghai Henlius (2696 HK),CPMC (906 HK), Seven & I (3382 JP), Shinko Electric (6967 JP), and Arvida (ARV NZ).

• New TOPIX still has a large number of stocks and its components aren’t sufficiently liquid. TSE seems to have considered the companies that are under pressure to sell their shares.
• The challenge for companies excluded from TOPIX components should achieve sustainable growth by continuous review of their business portfolios to achieve growth that they could not achieve in the past.
• The company’s performance must be in line with the plan disclosed by the company in response to the TSE’s request. These companies should consider whether they should remain listed.

• Revenue increased by 9.6% YoY to JPY1.5bn, with operating profit up 7.6% YoY to JPY300mn.
• EC business revenue rose 8.6% YoY to JPY866mn, while segment profit decreased 2.7% YoY to JPY299mn.
• Financial business revenue grew 11.0% YoY to JPY658mn, with segment profit down 44.7% YoY to JPY183mn.

• Today after the close we got news that after a year-plus of Hamamatsu Photonics Kk (6965 JP)‘s sliding stock price, Toyota Motor (7203 JP) is selling their 5+% stake.
• The offering is standard. Probably prices 9 Sep 2024. HP’s amended buyback program and probable index upweights offset most of the offering size over the next several months.
• So investors have to decide whether they want to catch the falling knife.

• Sanyo Industries Product Categories Sanyo Industries (TYO 5958) is a manufacturer of construction materials that’s been in business since 1948.
• Their main products are sheet metal works used for flooring, roofing, aluminium building materials, and rooftop ventilators.
• They also manufactur earthquake and other disaster resilient components.

• The carry trade involves borrowing in lower yielding currencies like the yen and investing in higher yielding assets
• The recent unwind of the carry trade caused temporary market stress, but quickly settled down
• The actors involved in the carry trade range from speculators to institutions, making it a diverse ecosystem with varying motivations and impacts

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

• H-1337 dosing commenced in PIIb clinical trials in the US in Aug-2023.
• The study is a multicenter, randomized, double-blind, active-controlled, dose-finding study investigating the efficacy and safety of H-1337 in patients with glaucoma and ocular hypertension by application of eye drops for 28 days.
• The number of patients is 200 cases in 4 groups: H-1337 0.6% (twice daily), 1.0% (twice daily), 1.0% (once daily), and Timolol (beta blocker drug for efficacy comparison, twice daily). 

• In terms of topline, both the Management Consulting Business and the Revitalization Support Business continued to perform favorably, achieving net sales of ¥2,908 mn (+14.3% YoY) and ¥791 mn (+5.6% YoY), respectively.
• The M&A Advisory Business reported net sales of ¥746 mn (-52.3% YoY).
• The Investment Business posted significant growth (+117% YoY), though its scale remained small with net sales of only ¥39 mn. 

• When JBS announced recording an impairment loss associated with the acquisition of NEXTSCAPE on 2Q results, it only revised down the initial FY24/9 forecast for profit attributable to owners of parent from ¥3,450mn → ¥1,500mn, leaving the rest of the forecast unchanged.
• While the impairment loss was clearly disappointing, it is important to keep in mind this is a non-cash item, and prompt action by JBS management in writing down the entire remaining portion of unamortized GW minimized future downside risk.
• As described on the next page, 3Q cumulative (9M) consolidated net sales rose +29.0% YoY, and operating profit rose +28.5% YoY, relative to full-term initial guidance for FY24/9 consolidated net sales +12.4%, and operating profit +21.6%. 

• On Thursday 29 August, Terumo Corp (4543 JP) announced a secondary offering where 7 major cross-holders would sell just under 5% of the shares outstanding to international investors. 
• In recent quarters, Terumo has seen better consensus EPS growth than Peers in recent quarters, and Peers have underperformed. Right now, Terumo isn’t ‘cheap’ but consensus growth is strong.
• This back-end demand in this case has enough moving parts that it bears a closer look. 

• A group of shareholders are looking to raise around US$1.36bn from selling ~5% stake in Terumo Corp (4543 JP).
• While the deal shouldn’t come as a surprise, given the ongoing cross-shareholding unwind narrative 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.

• Terumo Corp (4543 JP) has announced a secondary offering of up to 73.2 million shares, worth JPY203 billion (US$1.4 billion) at the last close. 
• The secondary offering facilitates the exit of large shareholders. Terumo also announced a buyback worth a maximum of JPY30 billion or 15 million shares.
• Looking at recent large Japanese placements is instructive for understanding the potential offer price. The pricing date will fall between 10 and 12 September (likely 10 September).

• Timee began trading on 26th July and share price has surged 47% since its debut where the company priced the IPO at top of the indicative price range.
• Though Timee Inc (215A JP) is in early stages, the company has proven that its business model is successful and continue to dominate a market that is underpenetrated.
• Though we think there is further upside, if you have already bought shares at the IPO, we would suggest taking profits and wait for a dip to make a re-entry.

• Since there was no difference in IR Disclosures between companies that increased valuations over past year and those that didn’t, it’s clear that improvement IR Disclosures alone won’t raise valuations.
• Since many companies with large market capitalizations have high foreign ownership, overseas investor engagement has had a positive impact on their high return on capital.
• TSE’s support for companies with small market capitalizations is a type of engagement that encourages companies whose engagement doesn’t reach them to think about their management strategies.

• 7&I Holdings is reviewing a confidential acquisition proposal from $ATD, highlighting significant potential for value creation through strategic refocusing on its core convenience store business
• ValueAct Capital previously criticized 7&I as an “unfocused holding company,” urging a focus on core assets, estimating a potential value of ¥4,200 per share.
• Our valuation suggests 7&I could reach ¥3,700 per share, driven by the repricing of its overseas CVS business; $ATD will need a strong offer.

• Reflecting strengths and weaknesses – Q1 FY3/25 results presented contrasting elements in Duskin’s business.
• Despite high hurdles YoY, the Food Group demonstrated sustained sales growth driven by the ‘Mister Donut’ chain.
• However, cost inflation (involving personnel and manufacturing amongst others) and challenges in new customer acquisition at the Direct Selling Group contributed to a 7.5% decline in OP YoY. 

• Revenue for FY01/23 was JPY117.6bn (+15.6% YoY), with Domestic Beverage revenue at JPY73.0bn (-1.7% YoY) and International Beverage revenue at JPY26.8bn (+155.8% YoY).
• Operating profit for FY01/23 was JPY2.3bn (-8.2% YoY), with a JPY238mn operating loss in Domestic Beverage and a 5.0x increase in International Beverage.
• For FY01/25, DyDo Group forecasts revenue of JPY240.0bn (+12.5% YoY), operating profit of JPY4.4bn (+17.9% YoY), and net income of JPY4.9bn (+10.8% YoY).

• Today saw the publication of three different articles regarding the Alimentation Couche-Tard (ATD CN) approach and offer to purchase all the shares of Seven & I Holdings (3382 JP) 
• The first in the Nikkei said ATD could push offer a high price, even up to ¥8 trillion. The second mentioned debt financing being feasible because of prodigious cash flow.
• The third in Bloomberg noted that 7&i had requested the government upgrade its FEFTA status to “core”, which would lead to a more burdensome/restrictive government approval process.

• Today after the close, Toyota Motor (7203 JP) reported the results of their ¥800bn Tender Offer Buyback, originally intended to repurchase 290.12mm shares from cross-holders. 
• In the end, 343.83mm shares were tendered (53.71mm shares more than originally expected, worth about ¥150bn at Tender Price). That creates back-end “issues” which must be considered.
• The resulting supply/demand profile is mixed, but on balance, I expect sees positive demand into the H1 earnings announcement. Watch for another buyback possibly announced then.

• Kioxia and Tokyo Metro with valuations of ~$10bn and ~$4.6bn are expected to be listed in October 2024 and become the largest Japanese IPOs since Softbank Corp (9434 JP) in 2018.
• Kioxia Holdings (6600 JP) is currently forecasted to fail fast entries of both Global indices due to low IPO free float. 
• Tokyo Metro is expected to be added via fast-entry in one Global Index because of higher IPO free float. Forecasted demand of ~$140m is expected on the fifth trading day.

• On 24 July, 3D Investment Partners proposed to privatise Tohokushinsha Film (2329 JP) through a tender at JPY600-650. 3D has extended the offer validity period from 23 to 30 August.  
• The controlling shareholder, Mr Hisako, claims he is not a seller regardless of price. The Board goes through the motions, knowing that Mr Hisako will decide the offer’s fate. 
• 3D’s persistence suggests that Mr Hisako’s resolve might be checked by bumping the offer. As this outcome is likely, the shares will continue to trade through terms.  

• Kioxia is getting ready to complete its IPO in Japan as soon as in October. Kioxia’s valuation is expected to exceed JPY 1.5 trillion (about USD 10.3 billion).
• SK Hynix’s stake in Kioxia (through Bain led consortium) is 19%. SK Hynix’s stake in Kioxia would rise to 34% if the CBs are converted into equity. 
• The IPO of Kioxia has mixed implications for SK Hynix which is a major shareholder. However, the IPO of Kioxia has a more direct negative impact on Samsung Electronics.

• Overseas investors tend to invest in companies with larger market capitalization and higher profitability, and companies with higher foreign shareholdings have significantly better values in corporate governance.
• Hitachi has been one of the most successful companies in this area, probably due to its intermittent reforms in profitability and corporate governance through engagement with overseas investors.
• Few companies, like Hitachi, achieved sustainable growth by continuous business portfolio review. This has led to high stock price volatility for many companies that cannot enter the sustainable growth phase.

• The next leader of Japan’s ruling LDP, who will almost certainly become prime minister in October, will probably not make major changes to the nation’s defense policy.
• Guidance remains unchanged after 1Q results that suggest the possibility of a better than expected order flow but also a material negative impact from a stronger yen.
• MHI’s valuation is not yet in speculative territory, but neither is it compelling. If the yen remains stable, we expect the share price to test its recent highs.

• The Nikkei 225 INDEX has rebounded strongly in the past 2 weeks, there is a chance that it starts to pull back this week.
• This insight will try to evaluate what support levels could be good to buy, assuming the index resumes its uptrend after the pullback.
• The index could fall for 1 or 2 weeks, the current pullback pattern is bullish (i.e. buy-the-dip).

• OHBA (hereafter, the Company) reported profit lines slightly above initial forecasts.
• In FY24/5, operating profit rose 7.4% YoY to ¥1.84 bn against its initial plan of ¥1.8 bn, with profit attributable to owners of parent (hereafter, Profit ATOP) rising 24.6% YoY to ¥1.34 bn versus its initial plan of ¥1.15 bn.
• On the other hand, sales fell just short of plan. 

• Positive numbers and strategically aligned M&A – Q1 FY3/25 results demonstrated a strong start to the FY, with most business segments performing ahead of plan.
• Positive demand from the auto and smartphone sectors and acquisitive growth drove sales volume and improved profitability YoY.
• The high return Eco-solutions segment also performed solidly, contributing to sales and earnings growth YoY. 

• Today after the close, Shinko Electric Industries (6967 JP) offered a progress report on the approvals for the JIC Consortium Tender Offer originally “scheduled” to start in late August 2024.
• “Procedures and Steps Necessary under the competition laws of Vietnam and China have not been completed” so the Tender Offeror expects to commence the Tender Offer in/after late January 2025.
• The announcement appears to suggest no update is likely for another five months or until the Tender Offer starts. That will introduce questions of further delay.

• Shinko Electric Industries (6967 JP) pre-conditional tender offer from the JIC alliance is JPY5,920 per share. The tender start has been delayed from late August to around late January 2025.
• The delay was due to outstanding China SAMR and Vietnam regulatory approvals. The stretched timeline suggests that SAMR will likely conditionally approve the deal. 
• While Ibiden Co Ltd (4062 JP)’s underperformance lowers the deal’s break price, timing, not break risk, remains the key concern. At the last close, the gross/annualised spread was 3.7%/7.5%. 

• Kioxia Holdings (6600 JP) aims to list in Japan by Oct 2024 at a valuation of over US$10bn, as per media reports. 
• Kioxia is a manufacturer and a global leader in flash memory and solid state drives for smartphones, PCs, enterprise servers and data centers
• In this note, we take an early look at the possible listing.

• A Strong JPY beneficiary as the company imports >80% of its products
• Profits have been rising despite the weakness  of the Japanese Yen 
• Redesigning product portfolio to be profitable at much weaker yen levels

• Q1 FY3/25 results were in line with guidance in our view, with indications that efforts to activate earnings growth are starting to deliver.
• While the core Digital Entertainment segment maintains a stable source of earnings, the Lifestyle business showed 13% sales growth YoY and reduced segment losses as monetization efforts began to make an impact.
• The Sports business continues to scale, with accelerated growth at the ‘TIPSTAR’ keirin (cycle team sports) betting service. 

• Handset sales bolster sales growth amid intensifying competition – Q1 FY3/25 results provided a steady start to the fiscal year, thanks to rising handset sales.
• Competition amongst carriers is intensifying in the prefecture though, and costs of procuring electricity for its au Denki business rose.
• The key earnings drivers were increased sales (+7.1% YoY to ¥19.81bn) from rising handset demand, solid additions of au Denki electricity contracts, and telecommunications ARPU. 

• A massive shortage of IT professionals combined with Shift’s overwhelming dominance of the labor market should drive 20% annual revenue growth through 2030. 
• But Shift missed consensus profitability estimates 3 consecutive quarters, and the share price is down 67% in 12 months, compared to an 18% rise in the median peer. 
• In our view, a recovery in profitability is already underway, and shares are at least 45% undervalued

• On Firday 23 August, Yamaha Motor (7272 JP) announced that three cross-holders would sell about 4.6% of the shares out in a secondary sale. 
• MS&AD was expected. Toyota was probably expected. Yamaha Corp is a bit of a surprise. But it also frees up Yamaha Motor to sell down cross-holdings (top 2 are Toyota/Yamaha).
• Given the price/guidance/dividend yield and limited size, this should be quite easy to place.

• Dalton & Co. increased their stake in Hogy Medical to 19.15%, signaling confidence in the new Medium-Term Business Plan.
• Hogy Medical’s new plan aims to boost ROE above 6%, drive revenue to ¥46 billion, and enhance shareholder returns.
• Potential M&A activity in Japan’s med-tech sector and the new plan could unlock significant shareholder value, with a possible 50% upside in share price.

• Softbank Group (9984 JP)  could see its USD450 million investment in India food delivery player, Swiggy , triple in value with the upcoming IPO, reportedly valuing it at USD15 bn.
• SoftBank Group, generated a total return, net of investments, of USD1.4 billion with the listing of Ola Electric (OLAELEC IN) , Unicommerce (UNIECOM IN), and BrainBees Solutions, this month. 
• If Swiggy’s IPO reaches valuations closer to Zomato’s, SoftBank could reap even greater rewards than from its recent portfolio company listings.

• A few companies have stock compensation plans for outside directors, but their common features are a majority of outside directors on the board and a high percentage of foreign ownership.
• 8 million compensation for an outside director would be too low to devote much of his/her time to that company. Consequently, 17.5% of all outside board members serve multiple companies.
• The need to raise the ratio of female board members amid the low percentage of women in managerial positions has increased the concurrent positions of female board members.

• 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: WeRide (WRD US) delayed its Nasdaw IPO, 99 Speed Mart Retail Holdings (99SPD MK) launched a US$530 million IPO.
• Event-Driven developments: Seven & I Holdings (3382 JP), Iriso Electronics (6908 JP), Fancl Corp (4921 JP), China Traditional Chinese Medicine (570 HK), Shanghai Henlius Biotech (2696 HK), GA Pack.

• Alimentation Couche-Tard has returned to the well with a NBIO for 7&I (3382 JP). This’ll be anathema to politicians who view 7&i as a local champion AND a lifeline entity.
• Global travel outfit Webjet Ltd (WEB AU) has announced the separation of its two key divisions. The sum of the part is greater than the whole? I’ll take that bet.
• The Kim family turn their focus to Hanwha Galleria (452260 KS) in the latest Partial Offer within the Hanwha Group complex. 

• A group of shareholders aims to raise around US$330m via selling around 3.6% of Yamaha Motor (7272 JP).
• This will be another cross-shareholding unwind and hence, won’t be a huge surprise, although the stock hasn’t been doing particularly well lately.
• In this note, we will talk about the deal dynamics and run the deal through our ECM framework.