Japan

• Shift Inc (3697 JP) s share price has been down 65% YTD as the company’s aggressive investment on HR and system reinforcement led to fall in margins which concerned the market.
• However, the company has adopted several measures to improve its margins, and we expect the investment in HR and others to generate results going forward.
• Though share price has moved up slightly, valuation multiples are at a steep discount, and we would look for building a position.

• The speed of management reform in Japanese companies is usually slower than investors and shareholders expect. In case of small- to mid-cap stocks, the speed is much slower.
• In small-to-mid-cap stocks, foreign ownerships are often lower than the average for listed companies, and older companies are often protected by cross-shareholdings. Therefore, engagement should be prepared for sluggish response.
• The way to resolve this situation is for the company to break the silent shareholder structure or increase shareholders who can exercise their voting rights based on rational decisions.

• The largest potential inbound cross-border M&A in years – for a national champion no less – gets a lot of press coverage. 
• This morning, a Nikkei article noted Alimentation Couche-Tard (ATD CN) was likely to need “prior approval” from Japanese regulatory authorities for its takeover “the Nikkei has learned.”
• It wasn’t difficult for the Nikkei to learn that. METI publishes a FEFTA List. 7&i has been on it for years as Type II Designated Business, requiring prior approval.

• Rohm’s cyclical turning points in revenue typically lag the turn METI production %YoY less inventory % YoY for electronic devices and components by 12 months.
• Investors were disappointed with Q1 results, but the company cleanly outperformed most peers in the power semiconductor space, and recovery now looks inevitable. 
• We believe the fair value of shares to be around ¥3,300, 2x the current price, but investors should ask, “When?” Not “How much.”

• Its portfolio of Japanese investments should benefit from the change in investor focus to domestic names.
• Has shown strong outperformance since the sell-off presaging future relative strength
• The business itself progressing as planned for increased shareholder returns

• Toyo Corporation announced a share buyback of up to 1.2 million shares or ¥1.5 billion for FY9/24, which equals about 5% of the current shares outstanding in addition to an upward revision of DPS to ¥67 from ¥62.
• This reflects Toyo’s commitment to improving total shareholder returns and ROE. OP margin declined significantly (-6.4% Q3 FY9/23, -6.5% Q3 FY9/24) but it was due to cyclicality.
• Physics / Energies continued to see strong growth (+35.0% YoY) on the back of robust demand for carbon neutrality. 

• GDO announced 1H FY24/12 consolidated financial results at 15:00 on Thursday 8/8, and it held a results briefing at 16:00 via Zoom webinar, hosted by CEO Ishizaka, COO Yoshikawa and CFO Nakamura.
• Headline figures were net sales +10.2% YoY, EBITDA -26.9%, the operating loss expanding and profit attributable to owners of parent dropping into loss.
• While headline numbers on the surface appear to indicate an extremely challenging environment, it is worth noting that the trend for 2Q-only profit improved sequentially at all levels (see red circles in the table below), and management is confident that profit will return to profitability in the 2H as measures to improve GPM and control costs contribute going forward.

• Q1-2 FY12/24 results were ahead of company guidance for profits, with the company driving earnings through a combination of sales growth for the higher return Product Service segment, and sound cost management with flat SG&A costs YoY.
• We believe quarterly Q2 FY12/24 SaaS metrics for LaKeel Products were positive, demonstrating an acceleration in growth for ARPU (+9% YoY) and MRR (+26.2% YoY).
• This strategically important product line contributed 14% of Q1-2 FY12/24 sales, and continued execution of scaling will allow the company to improve both the sales mix as well as the quality of earnings.

• The Logisteed/KKR entity received its approvals between the last week of July and this past week, and told Alps Logistics (9055 JP) it wanted to launch its tender 22 August.
• It will do so. Approvals were reasonably quick (as expected) and the Special Committee and Board decided nothing material had changed. No reason to change their opinion.
• This is still a HUGE price. And everyone will be out by mid-October if they want. This is an easy deal. And a GIGANTIC win for minorities.

• The increase in net profit from the previous year outpaced the growth in dividends, which increased cash on hand for listed companies to a record high level. 
• Since the equity ratio of manufacturing sector is over 40% and there’s little room for debt repayment, there’s room for a considerable increase in dividends in conjunction with share repurchases.
• If free cash flow isn’t used to invest in growth and return profits to shareholders, rather than to pay small dividends to shareholders, cash on hand will continue to increase.

• Q1-2 FY12/24 results demonstrated sustained double-digit earnings growth, driven by the Wealth Consulting business through customer acquisition and the rising number of concluded contracts.
• The Real Estate Solutions business has further raised assets under management and despite the increasing challenges in finding suitable assets, there were five transactions conducted for the ADVANTAGE CLUB business.
• Although the company has maintained FY12/24 guidance, we believe earnings momentum remains positive with the 1) increase in consultant numbers, 2) customer acquisitions, and 3) business investment in personnel as well as IT to boost productivity. We have left our earnings estimates unchanged.

• Establishing a track record of positive change – Q1 FY3/25 results were in line with guidance, as the company demonstrated solid execution for domestic and overseas hotel operations, supported by continued positive market demand.
• Occupancy rates remain stable at a high level, and ADR and RevPAR remained on an uptrend YoY.
• We note that the company has reported three consecutive quarters of high single-digit OPM, reflecting an improvement in the quality of earnings, and management’s strategies are delivering a sustained operational turnaround. 

• Colowide Co Ltd (7616 JP) aims to raise around US$230m in order to fund its prospective M&A transactions over the next few years
• While the company has undertaken a number of M&A transactions in the past, it hasn’t clearly stated its intended targets for this round.
• In this note, we will talk about the deal dynamics and run the deal through our ECM framework.

• Colowide Co Ltd (7616 JP) is an industrial fastish-food operator in Japan. They sell several dozen kinds of cuisine under several dozen brands, owned and franchised in Japan and overseas.
• The company “philosophy” is “Everything we do is for our customers and employees.” The stock is up 30% in 10yrs. It pays no dividend, but it pays a big yutairimawari.
• This means Real World Float is 100% owned by retail who want restaurant coupons. This offering will be bought by index, short covers, and another 20-30k coupon holders.

• It was reported yesterday that Alimentation Couche-Tard (ATD CN) has put forward a bold proposal to acquire Seven & I Holdings (3382 JP).
• The offer price remains undisclosed, but the market may be anticipating a significant premium based on the share price movement following the news.
• However, we believe the offer price could fall short of market expectations, and it is likely that Seven & i will reject the proposal.

• Q4 results were a mixed bag with GMV growth slowing to just 6%. However, costs came in better than expected, boosting margins
• Management surprise the market with bullish FY6/25 guidance. Expects GMV growth to accelerate to +10% and sees OP at a healthy 22-25 billion yen
• Activist investor Oasis has taken a stake in the company. There is an obvious restructuring angle in addition to significant upside from fintech expansion 

• Murakami’s entities, City Index Eleventh and Aya Nomura, reported a 5.06% position in Iriso Electronics (6908 JP). The purchases were from 25 July to 13 August.
• Murakami’s average buy-in price over the last 60 days was JPY2,378.90 per share, a 7.8% discount to the last close price.
• Murakami’s disclosure suggests two possibilities: the start of an activist campaign or a short-term pump-and-dump play. The former is likely as Iriso is cash-rich with a P/B less than 1x.

• Sales increased by 7.4% YoY to JPY49.8bn, with operating profit up 4.4% YoY to JPY9.9bn.
• Recurring profit rose 88.8% YoY to JPY19.9bn, driven by a JPY9.4bn equity method investment gain from Iwatsu Electric.
• FY06/25 forecasts include sales of JPY68.0bn (+36.5% YoY) and operating profit of JPY10.5bn (+6.6% YoY).

• In Q1 FY12/24, revenue was JPY36.5bn (-9.5% YoY), operating profit JPY2.2bn (+15.9% YoY), and recurring profit JPY1.2bn (+7.6% YoY).
• The company revised its full-year forecast to revenue JPY79.8bn (+1.8% YoY) and recurring profit JPY5.0bn (+106.6% YoY).
• The dividend payout ratio changed to 40% of underlying profit, with a minimum dividend of JPY10 per share.

• Today, part-way through the day, the Nikkei ran an article saying that Alimentation Couche-Tard (ATD CN) had made a confidential non-binding proposal to buy Seven & I Holdings (3382 JP). 
• 7&i shares obviously went up (limit up in a hurry, staying there, large size traded limit up at close). 
• Now things get complicated. 7&i has said they received a non-binding proposal for all the shares. There will be a Special Committee of all Independent Directors. All stakeholders will matter. 

• Seven & I Holdings (3382 JP) shares rose 22.7% as it confirmed media reports that it had received a confidential, non-binding preliminary proposal from Alimentation Couche-Tard (ATD CN). 
• The interest is unsurprising due to the weak share price performance. Since ValueAct’s open letter on 25 January 2022, the shares are up 5.2% vs. the Nikkei 225 up 38.0%.
• Couche-Tard aims for a friendly offer, which is challenging as it requires support from the founder’s family and the Japanese government. Therefore, the probability of a binding proposal is low.  

• Star Asia Investment (3468 JP) is looking to raise around US$118m in its primary follow-on offering to acquire four hotels. The acquisition will amount to a total of JPY34.7bn (US$237.5m). 
• The deal is a somewhat large one to digest, at 83 days of three month ADV and 13.3% of TSO .
• In this note, we will talk about the deal dynamics and run the deal through our ECM framework.

• FY06/24 results: Sales JPY2,095.1bn (+8.2% YoY), operating profit JPY140.2bn (+33.2% YoY), net income JPY88.7bn (+34.1% YoY).
• FY06/25 forecast: Sales JPY2,220.0bn (+6.0% YoY), operating profit JPY150.0bn (+7.0% YoY), net income JPY86.5bn (-2.5% YoY).
• Store count end-June 2024: 742 total, 632 domestic, 110 overseas; 24 new stores in Japan, 12 overseas.

• The increase in foreign ownership and the decline in cross-shareholdings have encouraged management reform. In order for engagement to be effective, it is essential to further reduce cross shareholdings.
• Reasonable explanation of the reasons for such transfers as changes in the purpose of policy shareholding or contributions to retirement benefit trust must be provided in the annual securities report.
• Rising stock prices increase the value of policy shareholdings. To accelerate the reduction of policy shareholdings, numerical targets should be published, such as by setting milestones.

• Q1-2FY12/24 results were a positive surprise in our view.
• Quarterly Q2 FY12/24 OPM of 4% returned to positive territory after four consecutive quarters of losses, driven by a combination of price hikes, revision to the product line-up to improve sales mix, restructuring measures, and sales volume expansion with a marked jump in China demand for electronic discharge machines.
• We believe Sodick has begun to transform to become more resilient and operationally efficient. 

• NextAge has, in just two short years, moved from number 3 to number 1 in the used car market in Japan. 
• It’s market share is still less than 7% and we no longer see any meaningful obstacle in the company’s path to 30% share within the next 8 years. 
• The stock underperformed Topix by 59% following a series of earnings misses, but we think all issues have been resolved. Fair value could be 3x the current price.

• Revenue reached JPY3.7bn (+47.5% YoY), with increases in Global Telecommunications but declines in Domestic Telecommunications and Medical & Healthcare.
• Operating profit was JPY760mn (+84.0% YoY), with cost ratio falling 7.1pp YoY and SG&A ratio rising 3.0pp YoY.
• Foreign exchange gains of JPY350mn were booked in Q1 FY03/25 due to valuation of foreign currency-denominated receivables and payables.

• Long Lastertec after a solid set of numbers and the easing of concerns raised by the recent Scorpion Capital short sellers report.
• Short 6525 Kokusai Electric over continuing concerns over the US upcoming trade restriction announcement in September.
• This was previously seen as a dangerous short due to its high outstanding short interest, although it has now unwound to almost zero.

• 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) aims to raise up to US$119 million through a Nasdaq IPO and US$321 million through a concurrent private placement.
• Event-Driven developments:China Traditional Chinese Medicine (570 HK), CPMC Holdings (906 HK), JTower (4485 JP), Piolax Inc (5988 JP), Fancl Corp (4921 JP), PropertyGuru (PGRU US). 

• The percentage of shares held by individuals and trust banks fell from 17.6% to 16.9% and from 22.6% to 22.1%, respectively. Increasing individual investors’ investment in Japanese equities isn’t easy.
• The presence of overseas investors will increase, as the percentage of shares held by foreigners, which has reached a record high, is expected to remain high in the future.
• The percentage of shares held by corporations decreased slightly, and cross-shareholdings are gradually being unwound. The gradual decline is likely to continue in the future.

• The Sony Group Corporation’s latest consolidated earnings report for the first quarter of fiscal 2024 demonstrated notable financial growth and strategic advancements across its diversified portfolio, which spans from electronic products and financial services to entertainment and gaming.
• Despite a complicated global economic climate, marked by exchange rate volatility and potential threats of an economic downturn, particularly in the United States, Sony has reported robust results and optimistic projections for the fiscal year.
• Baptista Research looks to evaluate the different factors that could influence the company’s price in the near future and attempts to carry out an independent valuation of the company using a Discounted Cash Flow (DCF) methodology.

• The reason why Sun Corp (6736 JP) has traditionally traded at a large discount to its potential outcome is the possibility of inefficient or delayed value realisation. 
• Materially ALL of the value of the company is in its holding in Cellebrite DI (CLBT US). True Wind Capital, the SPAC sponsor of CLBT, just bought 19% of SunCorp. 
• They bought that for the CLBT, or the value realisation thereof. And now with the slightly surprising Tender Offer result, the chances of a better outcome are now higher.

• Screen has rebounded from its recent low, but strong 1H results, the recent weakening of the Yen and reasonable valuation point to further short-term upside. 
• However, management is guiding for slightly lower operating profit in 2H, and Intel’s capex cuts also support a cautious outlook. 
• Screen expects slower growth in 2025 wafer fab equipment demand than SEMI, and neither appear to have factored in concern over insufficient return on investment in AI. 

Dentsu’s H124 figures show sequential quarterly improvements, with the group posting organic growth of 0.2% in Q2. Encouragingly, this is in part ascribed to improved pitch win rates in all four reporting regions, underpinning growth projections through H224 and into FY25, despite the persistent difficult macroeconomic backdrop. The One dentsu initiative is driving collaborative efforts across group capabilities and geographies and we expect this to be at the heart of the new medium-term strategy, to be unveiled in H2. In the meantime, the Business transformation (BX) offering is proving effective in Japan and is now to be rolled out more widely. The shares continue to be valued well below peers and we would expect this discount to narrow with improving operational performance.

• 7747 Asahi Intec announced FY06/25 OP guidance of Y25.2bn, close to street expectations, pointing to substantial upside. GPM guidance has increased and continuation of strong 4Q YoY sales is expected.
• Seven days of short interest outstanding could lead to a short squeeze; Earnings briefing tomorrow reinforcing these trends should be a further catalyst for upside.
• With short interest now low and limited potential for further gains after the recent rebound, 7733 Olympus appears to be losing momentum, especially with China sales continuing to flag.

• Freee KK (4478 JP) reported 4QFY06/2024 and full-year results today. Earnings were in line with guidance, but operating losses have declined significantly beating consensus by a huge margin.
• The company has issued guidance which calls for a break-even or an adj. OPM of 3% for FY06/2025E suggesting freee’s investments in marketing and client acquisition have finally paid off.
• Freee’s share price has moved up slightly during the last few weeks, but still trading at a discount to its own multiples and at a steep discount to Money Forward.

• Istyle Inc (3660 JP)’s share price surged 17% after strong FQ4 results, surpassing expectations and signaling a potential turnaround.
• Despite past challenges, iStyle’s ambitious mid-term plan promises increased monetization and stronger growth ahead.
• With mid-term revenue and profit far exceeding expectations, istyle’s future looks brighter, with it’s share price potentially rising by more than 200%.

• Asahi Intecc (7747 JP) reported strong FY24 result, with all key parameters beating estimates. FY24 revenue exceeds ¥100B, a significant milestone of the mid-term management plan.
• For FY25, Asahi Intecc has guided for revenue of ¥117B (up 9% YoY), operating profit of ¥25B (up 14% YoY), and net profit of ¥19B (up 19% YoY).
• Growth will be driven by increase in overseas revenue in medical division despite the impact of stronger yen. Positive environment and strong demand enhance conviction on the long-term growth prospect.

• Japan Airport Terminal Co (9706 JP) (JAT) share price was deeply affected by Japan Black Monday rout, and is starting to stage a recovery. 
• JAT is now looking cheap against other global airports and also against its own history based on P/E, EV/EBITDA, and P/BV.
• Our fair value is JPY6,050 derived from global airport peers average 2025 EV/EBITDA of 11.6x, this implies an UPSIDE of 21%. Despite the share price run-up, still good upside opportunity.   

• Volume handled increased by 20.2% YoY to JPY87.1bn, with operating revenue up 10.3% YoY to JPY18.5bn.
• Gross profit forecasts for Q3 FY09/24 are JPY1.2bn for July, JPY1.0bn for August, and JPY970mn for September.
• Operating profit for Q3 FY09/24 was JPY2.7bn, maintaining the same level as FY09/23 while executing growth investments.

• Revenue reached JPY19.0bn (+24.6% YoY), with operating profit at JPY229mn (+215.7% YoY), and recurring profit at JPY40mn (-85.5% YoY).
• Second-hand Online business revenue was JPY11.0bn (+31.4% YoY), with operating profit at JPY555mn (+68.5% YoY) and OPM at 5.0%.
• Mobile & Telecommunications business revenue was JPY7.4bn (+19.2% YoY), with operating profit at JPY456mn (+0.5% YoY) and OPM at 6.2%.

• Sales were JPY11.4bn (+7.1% YoY), EBITDA JPY1.5bn (+10.3% YoY), operating profit JPY1.0bn (+24.7% YoY), net income JPY429mn (+5.0% YoY).
• Revised FY09/24 forecast: Sales JPY14.6bn, EBITDA JPY1.8bn, operating profit JPY1.2bn, recurring profit JPY1.1bn, net income JPY1.4bn.
• Segment performance: Collective Intelligence Platform sales JPY9.3bn (+8.5% YoY), Medical Institution Support sales JPY377mn (+2.6% YoY), Preventative Healthcare sales JPY1.7bn (+1.4% YoY).

• 1H FY12/24 revenue was JPY2.2bn (-31.4% YoY), operating profit JPY97mn (-87.9% YoY), net income JPY32mn (-93.8% YoY).
• Q1 FY12/24 revenue was JPY937mn (-46.9% YoY) with an operating loss of JPY103mn; Q2 revenue increased to JPY1.3bn (-12.9% YoY).
• Medical Personnel Services revenue was JPY1.7bn (-4.8% YoY), Other Services revenue was JPY575mn (-61.9% YoY).

• Sales increased 6.9% YoY, with Japan segment sales declining and growth in China, Singapore, and Lansinoh segments.
• Operating profit decreased 10.6% YoY, with increases in Singapore and Lansinoh segments but declines in Japan and China segments.
• Net income attributable to owners fell 21.7% YoY due to a suspicious transaction in China, resulting in a JPY392mn loss.

• JTower (4485 JP) IPOed itself Dec-2019 at ¥1,600/share. An 8-bagger in a year, fell by half, doubled, fell 70%, then doubled, fell 35%, up 50%. That’s the first 3yrs.
• Since then, the trend has been lower. The stock is down 80+% in 2 years, especially painful after an equity raise at just under ¥5,000 6 months ago.
• But the stock today closed at ¥1,430, and the Tender Offer is at ¥3,600. A 150% premium. That’s big, but it may be “too low.” An interesting case.

• JTower (4485 JP) has recommended a tender offer from DigitalBridge Group (DBRG US) at JPY3,600, a 161.8% premium to the undisturbed price of JPY1,375 (13 August). 
• Despite the hefty takeover premium, the offer is light (compared to historical trading ranges and the recent placement) and opportunistically timed (the share price has fallen 61% since 9 May). 
• Nevertheless, barring a spurt of activism, the offer should succeed as the required 40.7% minority acceptance rate is not onerous and should be comfortably met by Japanese cross-holders.    

• Murakami’s entities, City Index Eleventh and City Index Third, reported a 5.05% position in Piolax Inc (5988 JP). The purchases were from 11 June to 6 August over 60 days.
• Murakami’s average buy-in price over the last 60 days was JPY2,286.61 per share, a 0.7% discount to the last close price.
• Murakami’s disclosure suggests two possibilities: the start of an activist campaign or a short-term pump-and-dump play. The former is likely as Piolax is cash-rich with a P/B less than 1x.

• Appier achieved 32% YoY sales growth in Q2, driven by strong US market performance and balanced revenue from both new and existing customers.
• The company’s EBITDA margin improved to 13%, reflecting strong operating leverage despite ongoing investments in growth initiatives.
• Trading at a 2.9x EV/FY25 revenue multiple, Appier is undervalued relative to peers, with significant upside potential from sustained growth and strategic initiatives.

• Full-year FY06/24 revenue increased 8.8% YoY to JPY24.8bn, driven by higher domestic revenue, despite a 1.1% YoY decline in operating profit.
• FY06/25 earnings forecast projects revenue of JPY25.7bn (+3.8% YoY) and operating profit of JPY1.9bn (-10.2% YoY), prioritizing salon expansion.
• The company opened 20 new salons and closed 30, resulting in a net decrease of 10 salons to 691.

• Revenue: JPY6.5bn (+6.5% YoY), Operating profit: JPY727mn (-15.6% YoY), Recurring profit: JPY697mn (-31.7% YoY).
• Number of recurring revenue customers at end-Q2: 127 companies (+9.5% YoY), Monthly ARPU in Q2: JPY5,080,000 (-4.5% YoY).
• Revenue for Creative & Engineering service line: JPY5.7bn (+7.4% YoY), Talent Platform service line: JPY451mn (+3.2% YoY).

• Sales increased to JPY2.0bn (+46.2% YoY), but operating loss widened to JPY425mn, with recurring loss at JPY1.8bn.
• Real Estate Investment Support segment sales rose 50.6% YoY, but operating loss widened to JPY469mn.
• Real Estate Management segment sales grew 18.7% YoY, with operating profit up 129.4% YoY to JPY44mn.

• Q1 FY03/25 results: Sales JPY61.1bn (+16.9% YoY), Operating profit JPY7.0bn (-1.4% YoY), Recurring profit JPY8.2bn (+7.7% YoY), Net income JPY4.8bn (+11.6% YoY).
• Segment sales: Semiconductor Equipment-related JPY39.9bn (+33.6% YoY), Electronic Device JPY10.0bn (+8.7% YoY), Automotive-related JPY5.8bn (-21.2% YoY), Others JPY5.4bn (-7.4% YoY).
• Revised 1H FY03/25 forecast: Sales JPY120.0bn (+13.8% YoY), Operating profit JPY13.0bn (-0.3%), Recurring profit JPY14.5bn (-4.7% YoY), Net income JPY8.5bn (+1.3% YoY).

• The company reported revenue of JPY146.2bn (+4.3% YoY) and operating profit of JPY27.2bn (+13.6% YoY) in Q1 FY03/25.
• Effective Q1 FY03/25, the company adopted a new segmentation with seven reportable segments, retroactively adjusted for Q1 FY03/24.
• Financial income was JPY35.1bn (+68.8% YoY), and the company decided to pay a quarterly dividend of JPY156 per share.

• Revenue: JPY3.2bn (-3.5% YoY), Operating loss: JPY185mn, Recurring loss: JPY161mn, Net loss: JPY175mn.
• Content Business: Revenue from publishing and electronic publishing declined; Internet Media services revenue increased; Solutions business revenue increased.
• Platform Business: Revenue rose due to robust sales of partner publishers’ electronic publications and books; operating profit decreased.