In today’s briefing:
- Huge Denso (6902) Secondary Sale by Toyota Group – Admiral Ackbar Says “It’s A Trap!”
- Denso Offering, Buyback, and New Cross-Holding Reduction Policy – It WAS a Trap
- StubWorld: Toyota Group To Sell 10% of Denso; Adelson Selling LVS
- Denso (6902 JP): US$4.0 Billion Secondary Offering and US$1.4 Billion Buyback
- Denso Corp Placement – Toyota to Raise US$4.4bn, as Expected
- L’Occitane (973 HK): FY1H24 Earnings Hurt By Massive Increase In Marketing, As Expected
- Dekon Food and Agriculture Group IPO – Ebbs and Flows of Cycle Have Hurt Profitability
- Perfect Medical H1 FY24: Rebound of Growth in H2 FY24, 9% Div Yield, New High ROIC Investment
- Quiddity JPX-Nikkei 400 Rebal 2024: End-Nov 2023
- Meituan: Earnings to Weaken Further
Huge Denso (6902) Secondary Sale by Toyota Group – Admiral Ackbar Says “It’s A Trap!”
- Yesterday, Reuters reported that multiple Toyota Group companies would sell ~10% of Denso Corp (6902 JP) worth ¥700bn in a secondary share sale by year-end.
- The sellers would be Toyota, selling down to just over 20%, Toyota Industries (6201) (selling down a bit more than half, and Aisin Seiki (7259 JP) selling its 2% stake.
- Denso would buy back shares. This whole thing is both interesting and complicated so I discuss the interesting complications below. It looks bigger than it probably is.
Denso Offering, Buyback, and New Cross-Holding Reduction Policy – It WAS a Trap
- 15 minutes after I published what I thought was a considered analysis, Denso dumps the details. I thought it might be a trap. It looks like a trap.
- A holistic view of the three different documents here suggests, indeed, “It was a trap”.
- This giant offering is not bearish overhang but likely tilts bullish with greenshoe support, a large buyback, a new cross-holding reduction policy, and the follow-on effects from that.
StubWorld: Toyota Group To Sell 10% of Denso; Adelson Selling LVS
- The Toyota Group of companies are proposing to reduce their holdings in Denso (6902 JP) by selling about 10% by year-end, in a share sale worth ~$4.7bn.
- Preceding my comments on Toyota Industries (6201 JP) / Toyota Motor (7203 JP) – and Las Vegas Sands (LVS US) – are the current setup/unwind tables for Asia-Pacific Holdcos.
- These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.
Denso (6902 JP): US$4.0 Billion Secondary Offering and US$1.4 Billion Buyback
- Denso Corp (6902 JP) announced a secondary offering of up to 294.8 billion shares (including overallotment) and a buyback (maximum shares of 125 million or maximum value of JPY200 billion).
- Denso also announced a cross-holding reduction policy. In an unspecified timeframe, it will sell part of its holdings in Toyota Industries (6201 JP) and Aisin (7259 JP).
- Looking at recent large Japanese placements is instructive to understand the potential offer price. The pricing date will fall between 13 and 18 December (likely 13 December).
Denso Corp Placement – Toyota to Raise US$4.4bn, as Expected
- Following yesterday’s news release by Reuters that Toyota Motor (7203 JP) could sell up to 10% of Denso Corp (6902 JP), the deal was officially launched today.
- Toyota is the company’s largest shareholder and its largest customer.
- We have covered the deal background in our earlier note, Denso Corp Placement – Possible Placement by Toyota to Raise US$4.7bn. In this note, we talk about the final terms.
L’Occitane (973 HK): FY1H24 Earnings Hurt By Massive Increase In Marketing, As Expected
- L’Occitane (973 HK) reported FY1H24 (fiscal year ending March 31) results yesterday after market, with net profit down 45% yoy.
- The sharp drop in earnings is mainly due to a 48% yoy increase in marketing costs, as well as increased finance costs.
- The company maintained the FY24 outlook of 17% topline growth and an operating profit margin of 12% (FY1H24: 7.2%).
Dekon Food and Agriculture Group IPO – Ebbs and Flows of Cycle Have Hurt Profitability
- Dekon Food and Agriculture Group (DFAG CH) is looking to raise up to US$128m in its Hong Kong IPO.
- Dekon Food and Agriculture Group (DFAG) is a vertically integrated livestock farming enterprise in China.
- In this note, we will look at past performance, and share our thoughts on valuation.
Perfect Medical H1 FY24: Rebound of Growth in H2 FY24, 9% Div Yield, New High ROIC Investment
- Perfect Medical Health (1830 HK) results showed 7% revenue growth and 10% YoY profit (27% YoY adjusted profit for subsidies) growth in H1 FY24.
- The company declared a 14.2 cent/share interim dividend. H2 dividends usually are higher, so we expect a 32-35 cent dividend for FY24.
- This is another dividend-yielding gem, trading at 12.0x PE FY24e, a 9% dividend yield, and 15% of the market cap in cash and investments with a >50% ROE.
Quiddity JPX-Nikkei 400 Rebal 2024: End-Nov 2023
- 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.
- Below is a look at potential ADDs/DELs for the JPX-Nikkei 400 Index Rebal to come in August 2024 based on trading data as of end-November 2023.
Meituan: Earnings to Weaken Further
- Meituan (3690 HK) ‘s 3Q2023 revenues beat estimates while OP for the quarter was well below consensus estimates.
- There were clear signs of slowdown in earnings growth due to macroeconomic challenges and weaker demand. 4Q earnings are expected to decline further.
- Meituan’s share price went down by about 11% following its earnings announcement as slowdown in core local commerce and weakening earnings have concerned investors.
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