Japan

• Following up on our earlier cross-shareholding notes, in this note we look at Sumitomo Mitsui Financial Group (8316 JP) cross-shareholding.
• SMFG had a stake over US$100m in at least 47 listed Japanese stocks, amounting to a total of around US$17bn.
• In this note, we take a look at its stakes in various companies to see which ones could possibly be candidates for further selldowns.

• Sakura internet (3778 JP) is looking to raise US$127m from its primary follow-on. Proceeds will be used towards purchasing GPU servers, and constructing new data center facilities.
• While 11% of total shares outstanding are offered here, the deal would be easily digested by the market, representing just 0.8 days of its three month ADV.
• In this note, we run the deal through our ECM framework and comment on deal dynamics.

• Today, Maxell Ltd (6810 JP) announced its new MTMP “MEX26 – Commit to Value (CorporateValue,ProfitGrowth)” with lots of consultant-speak and corporate homily.
• But they present a capital investment plan, and a capital return plan. These may interest investors. The buyback is the same size as 2019 and 2022. They popped and faded.
• Todays tidbits were all announced during the lunch break today, and the stock popped 6% in the PM session on the news.

• Lasertec shares dropped nearly 8% following a scathing 53-page report by Scorpion Capital, accusing management of “colossal fraud.” 
• The SC report is shrill, in our view, and therefore, we think we add value by contributing a second opinion. 
• In our view, Lasertec is due for a correction even if SC’s report is inundated by hyperbole.

• Companies in the 0% to 8% ROE group have low stock valuations and are in trouble because they are unable to step into value-creating management.
• Companies in this group, which includes many prime market listed companies, have done what is required by Corporate Governance Code, but could not take action to increase their ROE.
• The lack of significant differences in corporate governance practices for group with ROEs above 10% is due to foreign ownership not being significantly differentiated from other groups.

• Registering record sales and earnings – Q1 FY12/24 results recorded the highest quarterly operating profit to date, demonstrating a brisk start to the FY.
• The core earnings driver was Wealth Consulting, chiefly in Business Succession which closed a large M&A transaction.
• The Real Estate Solutions business also saw strong sales growth (+24.2% YoY), driven by rental income and other real estate transactions, while the core ADVANTAGE CLUB (real estate fractional ownership product) saw flat sales YoY.

• 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 5mos 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 12wks ago, recommended taking profits.
• Shinko had outperformed Ibiden, gross spreads had narrowed 5+% on JSR approval. Spreads are now 2.6% wider than at narrowest. In May, gap risk narrowed as Shinko underperformed Ibiden.

• Tosei achieved record revenue and profit, driven by robust growth in its fund management business and a balanced portfolio of stable and sales-driven operations.
• Activist investor Dalton acquired a 5.02% stake, highlighting concerns over recent governance decisions and potential Board independence dilution due to the Nagoya Railroad alliance.
• Dalton’s involvement ensures heightened scrutiny, promising better governance, and potentially favorable outcomes for minority shareholders amid Tosei’s continued strong business performance.

• Results underline high earnings visibility in Profit-Generating Funeral Services – Q1-4 FY3/24 results were in line with guidance, with positive high growth momentum being sustained at Profit- Generating Funeral Services.
• The legacy businesses (Information and HR) missed forecasts, highlighting turnaround challenges.
• However, the new business Asset Consulting has started strongly as a high-margin activity, and the outlook is positive. 

• In mid-January 2024, the TSE announced a “name-and-shame” list where they listed all the companies which had put forth a disclosure about 【資本コストや株価を意識した経営の実現に向けた対応】. But they did not actually shame.
• The TSE list shows which companies have disclosed a policy/consideration. But no data/links. We are weeks ahead of the TSE and we have all the links (and the shame list).
• We created a tool to name everyone, show their reports, provide links to every document, and now a new tool. Put in a name, see the difference between the Old/New Reports.

• Nagatanien Holdings (2899 JP) recommended a Marunouchi Capital-sponsored MBO at JPY3,100, a 38.4% premium to the undisturbed price. 
• The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The offer period is from 4 June to 16 July.
• While not a knockout bid, the offer represents a five-year high and requires a 58% minority acceptance rate. This is a done deal with payment commencing from 23 July.  

• MitCorp – the largest shareholder – and the Nagatani family – today announced an MBO where they will buy a classic ubiquitous brand at an Adjusted EV of 5.4x EBITDA.
• The equity check appears to buy at ~2.5x Mar27-29 average FCF but they probably have 50% of the shares in the bag. Retail, or who they sell to, matter.
• There is room for a noisy activist to get involved here and disrupt the retail ownership. But there are very few of those around. And none in it now.

• Since companies with higher foreign ownership have better profitability and corporate governance practices, it can be inferred that the overseas investor engagement has improved the company’s profitability and corporate governance.
• If the company’s management has changed to value-creating management through the overseas investor’s engagement, the company isn’t expected to change to value-creating management in just one year after “TSE’s request”.
• Many companies that do not receive overseas investor engagement have more room for improvement in aspects of management strategy execution and will be evaluated over time for improvements in profitability.

• Numerical targets for FY24/12 initial guidance are shown in the exhibit below.
• Despite initial guidance for consolidated OP of ¥800mn, an increase of ¥420mn (+110.3% YoY), the Company cites conservatively forecasting non-operating and extraordinary items such as interest expenses, restructuring costs, and exchange rate fluctuations for initial guidance for ordinary profit break-even and a net loss of (¥600mn) for profit attributable to owners of parent (see P2).
• Key initiatives and expectations for 2024 include: 1) in Japan, aim to provide more data-oriented and efficient services (online golf equipment sales GPM improving after 4Q inventory adjustment), 2) GOLFTEC golf lesson cash sales set to improve on coach issue addressed and marketing campaigns such as “7 shots better,” and 3) expand SkyTrak sales distribution channels. 

• Blackstone (BX US) is widely reported to have agreed to acquire Teijin Ltd (3401 JP)’s 55% stake in Infocom Corp (4348 JP) at a valuation of JPY260 billion. 
• If the valuation refers to market cap and Teijin shares its tax benefits, Teijin’s sale proceeds are around JPY128 billion, which is 42% of its market cap.
• However, since 9 May, Teijin shares have been flat vs. Infocom shares are up 63%. Teijin’s medium-term plan suggests that the Infocom proceeds could result in substantial share buybacks.

• Companies with larger market capitalizations tend to have higher profitability and valuations, and those companies have higher foreign ownership.
• Given that board practices improved and that valuations, highly correlated with foreign ownership, are higher for companies with larger market capitalizations, this can be due to engagement of overseas investors.
• If this hypothesis is correct, the gap between the top and bottom market capitalization companies will widen further as it takes a certain time for engagement to pay off.

• Aisin is already achieving strong growth, across many markets, and this should continue with more sales into EV and HEV markets
• Financial strength is improving, with gearing moving lower, and debt/ebitda moving lower
• Balance sheet clean up can lead to some volatility, but overall a general positive, as is the focus on capital management

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• On the IPO front, we undertook a peer comparison and looked at valuations for Shift Up (462870 KS). 
• On the placement front, it was another busy week with a number of blocks in India along with Asmedia Technology (5269 TT)‘s GDR offering and Exedy Corp (7278 JP). 

• 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: Shift Up (462870 KS) seeks to raise up to US$320 million.
• Event-Driven developments: Asia Cement China (743 HK), Greatview Aseptic Packaging (468 HK), Huafa Property Services Group (982 HK), Chilled & Frozen Logistics Holdings (9099 JP), Infocom Corp (4348 JP). 

• Colour me perplexed. Murakami Group ran up Mitsui Matsushima (1518 JP)‘s share price in acquiring 29%. The pattern was clear, but one assumes everyone in-group was on the same page.
• Two activist shareholders. And long only upping its stake. Heavily discounted China Merchants China Direct Investments (133 HK) is in play.
• A HUGE new buyback for Kansai Paint (4613 JP). Really big. Buy Kansai Paint vs Nippon Paint. One can buy the pop. One can buy any dips after the pop. 

• On Friday, acquisitive wafer technology firm Rs Technologies (3445 JP) announced it would buy lamp and printing equipment maker Helios Techno Holding (6927 JP) at a 74% premium.  
• The premium is big, but Helios is a steal at the price. Granted, it is a small potatoes steal. 
• The register is not controlled by any one party or group of investors other than retail. That makes this interesting.

• Chilled & Frozen Logistics Holdings (9099 JP) was near an all-time high in late March when it closed at ¥2,041 the day AZ-Com Maruwa Holdings (9090 JP) bid ¥3,000/share.
• That was hostile, and C&F’s Board reacted swiftly, looking for a market check and competitive process. It got one. It was VERY successful in getting the best bid. 
• SG Holdings (9143 JP) has bid ¥5,740 – a very full multiple and 91% higher than AZ-Com’s price. I don’t expect an overbidder. Huge governance win for Japan minorities. 

• Bloomberg reports that Blackstone (BX US) has agreed to acquire Teijin Ltd (3401 JP)’s 55% stake in Infocom Corp (4348 JP) at a rumoured valuation of JPY260 billion. 
• The potential minority offer price depends on whether the rumoured valuation refers to market cap or enterprise value and whether Teijin will share TOB tax benefits. 
• The most likely scenario is that the valuation refers to the market cap, with Teijin sharing TOB tax benefits, resulting in a minority offer of around JPY5,720 per share. 

• Chilled & Frozen Logistics Holdings (9099 JP) has recommended SG Holdings (9143 JP)’s JPY5,740 tender offer, a 91.3% premium to AZ-Com Maruwa Holdings (9090 JP)’s JPY3,000 hostile offer. 
• SG Holdings’ offer premium is stupendous. However, the offer values C&F at a CY2024 EV/EBITDA of 27.2x vs. Alps Logistics (9055 JP) offer at a CY2024 EV/EBITDA of 29.2x. 
• The Board deserves credit. AZ-COM Maruwa is unlikely to engage in a bidding war as SG Holding’s offer has the Board’s recommendation and comes with a hefty takeover premium. 

• JPX-Nikkei 400 is composed of common stocks listed on the Tokyo Stock Exchange. It is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents.
• A periodic review is conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year. We look at the rankings of the potential ADDs/DELs every month.
• In this insight, we take a look at potential ADDs/DELs for the JPX-Nikkei 400 index rebal event to come in August 2024 based on trading data as of end-May 2024.

• Founded in 1881, Oki Electric Industry Co., Ltd. manufactures electrical and communications equipment, ICT equipment, and systems that utilize these products.
• In FY03/24, OKI reported full-year consolidated sales of JPY421.9bn, operating profit of JPY18.7bn, recurring profit of JPY18.3bn, and net income of JPY25.6bn.
• OKI Electric Industry Co., Ltd. announced that it expects to record income taxes–deferred in its consolidated and non-consolidated financial results for FY03/24.

• Global MSCI indexes (MSCI ACWI, ACWI ex-US, EAFE, and EM) are pulling back following recent breakouts to multi-year highs. Europe, Japan also pulling back to uptrend supports.
• Short-Term supports to watch-discussed in our May 23, 2024 Int’l Compass-include $110.50 on ACWI-US, $53.50 on ACWX-US, $80 on EFA-US, and $41-42 on EEM-US; buy this pullback. 
• As long as these supports hold, we anticipate significantly higher prices ahead. Combination of supports holding and healthy market dynamics continues to validate our bullish outlook on global equities.

• On Monday 27 May, Aisin (7259 JP) announced an offering to sell ALL of its 36+% stake in equity affiliate Exedy Corp (7278 JP) for likely ¥40bn+. 
• Exedy announced a big buyback to go with it. It bought back 30% of the total on Weds morning, and that reduced the size of the offer. 
• I had expected “short-term games” but we haven’t really had them. Which is a bit weird. This update shows the details and dynamics (they differ).

• The entire saga here of Teijin Ltd (3401 JP)‘s disposal of its 55.1% stake in Infocom Corp (4348 JP) is being played out in the non-generally-public press. 
• There is reportedly a new piece of writing out late Thursday which suggests an approach.
• I wrote about the “meaning” of words in Infocom (4348 JP) – The Meaning of ‘Binding Bids’ and ‘¥250bn’ and now there is more nuance to parse.

• 24mos ago, Kansai Paint (4613 JP) announced a new MTMP, a large buyback, and plans to unwind cross-holdings. Big. 15mos ago a large secondary offering kicked off the festivities.
• Key was Toyota sold. Then KP could sell its Toyota shares – two-thirds of its cross-holdings. The offering was one to buy. A buyback followed. KP vs Nippon Paint doubled.
• KP offered a CB recently with the delta hedge done by TN-3. Now there is a HUGE new buyback. Really big. This gets rid of more cross-holders. And there’s more.

• Companies with higher ratings for Corporate Governance Practices (Board Practices and Key Actions) tend to have significantly higher profitability, market capitalization and valuations.
• Foreign ownership has the highest correlation with the Metrical CG score, suggesting that years of overseas investor engagement have improved the companies’ corporate governance practices and profitability.
• The pace of efforts varies with criteria of Corporate Governance Practices.  Companies with Metrical CG scores of over 70% are ahead in % independent directors and % female board members.

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.

• Fosun International
• Lenovo
• Lippo Malls Indonesia Retail Trust
• NTPC Ltd
• Rakuten

• Colour me perplexed. Murakami Group ran up Mitsui Matsushima (1518 JP)‘s share price in acquiring 29%. The pattern was clear, but one assumes everyone in-group was on the same page.
• The earliest buyer was NOMURA Aya. She bought early, slowly, then aggressively, then onshore buyers bought aggressively at higher prices. But she has now sold 6 days straight.
• The pattern is confusing but it will become clearer in coming days.

• Chilled & Frozen Logistics Holdings (9099 JP) asked AZ-Com Maruwa Holdings (9090 JP) repeatedly to respond to its entreaties, and delay the start of its tender offer until end-May.  
• C&F was running a process and wanted to be transparent. When AZ-Com announced, C&F said “we have counter-bidders” and the stock went up. Then a Nikkei article propelled it higher.
• AZ-Com then asked, twice, for clarity from C&F, saying investors deserved more information. The shoe was on the other foot. Now C&F has responded. Again. 

• Akatsuki Inc (TYO 3932) is a net-net Japanese video game developer with 10 years of profitability.
• They’re undergoing a big transformation in an effort to better compete globally by investing enormous amounts into their core development capabilities and increasing their average budget per game 3-6x.
• They recently formed a capital alliance with Sony (6758) and Koei Tecmo (TYO 3635) with each taking a 10% and 8% stake respectively.

• LY (4689 JP)‘s Yahoo Shopping looks to be in trouble after five straight quarters of negative growth while Amazon and Rakuten move ahead.
• Despite a revenue increase in 4Q2023, Yahoo Shopping continues to struggle with merchant fraud and a lack of a clear USP.
• If effective integration between the many parts of LY is not forthcoming soon, the company may eventually attract demands for better synergies, as well as a stick-wielding Softbank.

• Even after the TSE’s request for a P/B increase, it is not possible to raise valuations simply on the expectation of a P/B increase without improving profitability.
• Most companies have cash allocation challenges. Companies with higher profitability will accumulate even more cash on hand, so higher level of shareholder return will further positively impact ROE and ROA.
• Some of the companies that have reduced valuations include those with relatively high ROE and ROA, so there are small-cap stocks with reduced valuations and increased investment opportunities.

• Lengthening order lead times impacting revenue recognition – Q1-3 FY6/24 results were behind expectations in our view, with sales declining 27.6% YoY.
• Whilst a negative optic, the reason stems from lengthening lead times for shipment, given customer demands for more high-end and exacting technical requirements for custom-made products requiring more time for delivery.
• We believe this highlights the value-added technical expertise of the company and delays in revenue recognition. 

• Toyota equity affiliate Aisin (7259 JP) last September said it would sell all its crossholdings. That now includes a 36.5% stake in Exedy Corp (7278 JP). 
• Today, they announced an offering of all the shares (when including the greenshoe). That is nearly ¥50bn. That is offset by a ¥15bn buyback which could reduce the offering size.
• Games may be played, but there is considerable accretion, and Exedy will see higher float and still-high net cash.

• A variety of articles of recent from private media sources have suggested that Teijin Ltd (3401 JP) has its 55% stake in Infocom Corp (4348 JP) up for auction. 
• According to earlier articles, binding Second Round bids were due last week. According to an article out late last week, binding bids have been made, with some “around ¥250bn.”
• What that means for price may depend on what the “around ¥250bn” means. A brief exploration below. 

• Aisin (7259 JP) is looking to raise US$290m from selling its entire stake in Exedy Corp (7278 JP).
• While the selldown doesn’t seem to be particularly well-flagged, this appears to be another cross-shareholder unwind in Japan.
• In this note, we will talk about the placement and run the deal through our ECM framework.

• The music industry in the west focuses on speculative assets and bundling services, while in Japan firms have 360-degree deals with artists.
• Amuse, a major player in the Japanese music industry, historically managed the successful band Southern All Stars but has diversified beyond them.
• Despite still having concentration in top acts like Masaharu Fukuyama, Amuse’s business model and intrinsic value are seen as attractive to investors.

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.

• Starts is a high-quality business operating primarily in asset-light CRE services
• The company has the potential to reframe its narrative and increase its share price
• Strong founder and management team with a history of delivering impressive returns on equity

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.

• Shimamura continues to grow at a solid rate after struggling to find relevance in the five years to 2021.
• Its growing success with collaborative brands and direct sourcing has delivered younger fans in city centres, and the apparel retailer now plans to build stores in the four big conurbations.
• The timing is just right as consumers shift to ever cheaper basics in the face of fears of further inflation and tougher times ahead.