In today’s briefing:
- Thinking About The Toyota Tender Offer Buyback
- Fancl (4921 JP): Kirin (2503 JP) Relents and Bumps to JPY2,800
- Global Markets Plummet as Recession Fears, Weak Jobs Report, and Israel-Iran Conflicts Escalate
- Sapporo Holdings: Investor Activism Sparks Short-Term Gains, Tax Reforms Ensure Long-Term Success
- Eternal Beauty Pre-IPO Tearsheet
- The Number of TOPIX Components Should Be More Reduced to Raise the Quality of Engagement, Though
- MercadoLibre 2Q24: Fintech Credit Fuels Commerce Growth
- China Resources Beverage Pre-IPO – Peer Comparison – Middling
- Shortlist of High Conviction Philippines Equity Ideas
- SRS Holdings (8163 JP): Coverage initiation
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Thinking About The Toyota Tender Offer Buyback
- In May when shares were trading near ¥3,500-3,600, Toyota announced a ¥1trln buyback. When shares fell, they announced a Tender Offer Buyback at a large discount (¥2,781/share).
- Subsequently, the shares fell very sharply on Thursday 1 August, then again Friday and yesterday. That put shares WELL below the Tender Offer Price. That creates possible opportunity.
- This insight discusses modalities (talk to your advisor for specific advice/info) who might do what and why. It sets parameters. But I think Toyota is cheap here.
Fancl (4921 JP): Kirin (2503 JP) Relents and Bumps to JPY2,800
- Kirin Holdings (2503 JP) has increased the Fancl Corp (4921 JP) tender offer price by 4.1% to JPY2,800 and extended the offer period to 28 August. The price is final.
- Kirin tried to get the required acceptances by refusing to bump and extending the offer period. However, these tactics failed, as the shares continued to trade above terms.
- The Board twice asked Kirin to raise its offer higher than JPY2,800, but eventually recommended the revised offer. Nevertheless, the bump should be sufficient for Kirin to succeed.
Global Markets Plummet as Recession Fears, Weak Jobs Report, and Israel-Iran Conflicts Escalate
- July saw only 114,000 new jobs versus a forecast of 180,000. Unemployment rose to 4.3%, the highest since October 2021.
- The S&P 500 fell 1.8% and dropped below its 50-day moving average, tech and semiconductor sectors led significant market declines.
- Implied volatility surged as the S&P 500 saw high put options activity. Analysts expect a potential market rebound later in August.
Sapporo Holdings: Investor Activism Sparks Short-Term Gains, Tax Reforms Ensure Long-Term Success
- Sapporo Holdings (2501 JP)‘s strategic position in the domestic market, coupled with untapped potential in international markets, makes the company an interesting prospect for the long-term.
- 3D Investment Partners’ July 2024 letter praising Sapporo’s intention to divest its real estate business has reignited investor interest in Sapporo as a play focusing on Japan’s investor activism.
- Therefore, Sapporo seems interesting both in the short term and long term, as we think shares could break out to a new high with trading volumes showing signs of improvement.
Eternal Beauty Pre-IPO Tearsheet
- Eternal Beauty Holdings Limited (EBHL12 HK) is looking to raise about US$200m in its upcoming Hong Kong IPO. The deal will be run by BNP Paribas, Citic, CMBI and DBS.
- Eternal Beauty is the largest brand management company of perfumes in the combined markets of Mainland China, Hong Kong and Macau, in terms of retail sales in 2023.
- The company has a diverse portfolio of iconic brands of not only perfumes, but also color cosmetics, skincare products, personal care products, eyewear and home fragrances under management.
The Number of TOPIX Components Should Be More Reduced to Raise the Quality of Engagement, Though
- The cost is somewhat reduced for the user because of the higher weighting of more liquid stocks. Meanwhile, selling pressure is inevitable for less liquid companies whose weights are reduced.
- Even if the number of stocks decreases, 1,200 stocks isn’t small number. Also, even though the market capitalization of the components has increased, approximately 73 billion yen isn’t sufficiently liquid.
- With calls for increased engagement, the number of issues remains too large for domestic asset managers, where passive funds account for a high percentage of AUM.
MercadoLibre 2Q24: Fintech Credit Fuels Commerce Growth
- We maintain our Outperform recommendation on MercadoLibre with a preference for MELI 2.375% 2026 bonds. We remain optimistic about the company’s overall financial and business risks.
- Revenues increased by 41.5% (FX-neutral: 113%) to $5.1 billion in 2Q24. However, the EBIT margin contracted significantly by 440 bps to 14.3% from 18.7%.
- MELI ended the quarter with $976mn in net debt, down from $1.4 bn sequentially. Gross leverage remained relatively stable at 1.8x, and net leverage improved by 0.2x sequentially to 0.3x.
China Resources Beverage Pre-IPO – Peer Comparison – Middling
- China Resources Beverage is looking to raise US$1bn in its upcoming Hong Kong IPO.
- China Resources Beverage manufactures and sells packaged drinking water and RTD soft beverages in China.
- In our earlier note, we talked about the company’s past performance. In this note, we will undertake a peer comparison.
Shortlist of High Conviction Philippines Equity Ideas
- We are slowly building out a high-conviction coverage of ideas for the mid and small-caps in the Philippines.
- We set criteria for high ROCE, reasonable growth (10-15% YoY), strong balance sheets, and reasonable capital allocation (dividend yields), all ingredients for being multi-baggers.
- We like Ginebra San Miguel (GSMI PM), The Keepers Holdings (KEEPR PM), DigiPlus Interactive (PLUS PM). We will also be exploring Centro Escolar University (CEU PM)
SRS Holdings (8163 JP): Coverage initiation
- In FY03/24, revenue was JPY60.2bn (+10.5% YoY), operating profit was JPY2.2bn (operating loss of JPY607mn in FY03/23), recurring profit was JPY2.2bn (recurring loss of JPY669mn), and net income attributable to owners of the parent was JPY1.8bn (net loss of JPY1.5bn).
- Revenue and profits grew YoY.
- Contributing factors included the normalization of social and economic activities as the pandemic’s impact tapered off, the increase in customer count thanks to various marketing efforts, and various measures aimed at profitability improvement.