In today’s briefing:
- Toshiba – Kioxia Could Be A Break Risk
- Toshiba (6502 JP): Tender Offer Risk/Reward
- JAPAN GOVERNANCE CHANGES III: New Return Policy at Seikitokyu (1898) – To Be Copied Elsewhere?
- Yitai Coal (3948 HK): H-Share Offer (Likely) Imminent
- BIGLY Marui Group (8252 JP) Buyback, Backed by Big Dividend Boost
- KLINE (9107) – Salutary Earnings, Decent Div, Strong Forecast, and Flow To Come
- Where Are We Now Regarding New Dividend Distribution Procedure in Korea?
- Yitai Coal (3948 HK): H Share Buyback Offer at HK$17.50 Per H Share
- Seven & I: Investor Activism Update
- KOSPI Size Indices – Potential Changes in September
Toshiba – Kioxia Could Be A Break Risk
- We believe Kioxia’s results present a significant risk to financing for JIP’s Toshiba bid.
- Recent commentary from companies increasingly points to the potential for an L-shaped recovery rather than a U-shaped one.
- In addition, if conditions remain as challenging as they have been or worsen it is not inconceivable for Kioxia to require more capital.
Toshiba (6502 JP): Tender Offer Risk/Reward
- Toshiba Corp (6502 JP) reports FY2022 results on 12 May. Since the announcement of Japan Industrial Partners (JIP)’s pre-conditional tender offer of JPY4,620 per share, there have been no progress updates.
- The spread to the offer is currently 4.2%, suggesting a reasonable probability of success. However, the offer’s success ultimately depends on shareholder backing, particularly from the activists on the register.
- Shareholder support continues to pose a considerable risk as the peers have re-rated, the offer’s price ratio remains unattractive and the declining premium of the offer’s implied multiple vs peers.
JAPAN GOVERNANCE CHANGES III: New Return Policy at Seikitokyu (1898) – To Be Copied Elsewhere?
- Activist Strategic Capital has made shareholder noise at civil engineer-road infra company Seikitokyu Kogyo (1898 JP) for years. Two years ago I wrote about Seikitokyu as “A REALLY Cheap Company.”
- When I wrote, it was ¥885/share. 23 months later it was ¥824/share having paid ¥60/share over two years. Despite having bought back 10% of shares outstanding in the interim.
- Today they announced a radical new Shareholder Return Policy. It is worth reading in detail. The insight is labelled BEARISH for a specific reason. That’s a detail too.
Yitai Coal (3948 HK): H-Share Offer (Likely) Imminent
- Back on the 29 March, Inner Mongolia Yitai Coal Company Ltd (3948 HK) announced a possible H-share buyback at HK$17/share, a 50.4% premium to the undisturbed price.
- Yitai Coal is PRC-incorporated, therefore it is not afforded compulsory acquisition rights. To buy back ALL H-shares, either a Merger by Acquisition or a Voluntary Conditional Offer is required.
- The Offer/buyback, should it proceed, is subject to various PRC regulatory approvals, including SAFE; together with approval from Yitai Coal’s A/H shareholders. To date, the SAFE Registration has been completed.
BIGLY Marui Group (8252 JP) Buyback, Backed by Big Dividend Boost
- Last year, fintech-wannabe Marui Group (8252 JP) announced a large buyback as part of its ¥100bn distribution to shareholders in its MTMP, then increased the size
- They repurchased ¥26bn of shares. Today they announced the return of ¥50bn this year including a ¥40bn buyback. And having arrived at their optimal balance sheet structure, a new policy.
- That’s 10% of market cap and 11.6% of shares. And again a delayed start. And as always, shareholder structure matters. In this case a lot.
KLINE (9107) – Salutary Earnings, Decent Div, Strong Forecast, and Flow To Come
- Kawasaki Kisen Kaisha (9107 JP) has been a high conviction long since early November when it reported Q2 earnings and a buyback. Buyback executed, they upped the dividend.
- At Q3, earnings were downgraded from ¥700bn to ¥650bn on container biz weakness. FY22 ended at ¥695bn. March 2024 had been forecast at ¥106bn, the forecast is now ¥120bn.
- The dividend has been “lowered” to ¥200/share, which is higher than expected. That’s for this year.
Where Are We Now Regarding New Dividend Distribution Procedure in Korea?
- 646 listed companies (28.5%) in Korea have modified their articles of incorporation this March to prioritize determining the dividend amount before setting the dividend record date.
- New practices will arise involving the use of single-stock futures for arbitrage trading through baskets among major high-dividend companies whose dates of the dividend records overlap.
- It will be crucial to keep track of the dividend record dates with precision. In this connection, KLCA and KOSDAQCA will create a website monitoring this information.
Yitai Coal (3948 HK): H Share Buyback Offer at HK$17.50 Per H Share
- Inner Mongolia Yitai Coal Company Ltd (3948 HK)‘s H Share buyback offer is at HK$17.50, a 54.9% premium to the undisturbed price and a 9.0% premium to the last close.
- The key conditions are approval by at least 75% of independent H Shareholders (<10% of all independent H Shareholders rejection). There is a 90% minimum acceptance condition.
- The three independent H shareholders holding a blocking stake will be supportive of the attractive offer (9-year H Share price high). The price is final. Timing is the key risk.
Seven & I: Investor Activism Update
- The relationship between Value Act and Seven & I Holdings (3382 JP) has become toxic due to Value Act’s opportunistic behaviour after the passing of the Seven & I founder.
- Seven & I and Value Act have been exchanging letters more frequently, with recent ones taking on an angry tone, especially from Seven & I’s side.
- Value Act’s attempt to block the reappointment of experienced directors could cause long-term value disruption, especially if their goal is to pressure a spinoff of the convenience store business.
KOSPI Size Indices – Potential Changes in September
- The review period for the September rebalance of the KOSPI Size Indices will run from 1 June to 31 August. The changes will be implemented at the close 7 September.
- We see 6 migrations from MidCap to LargeCap, 56 migrations from LargeCap to MidCap, 2 new adds to MidCap, and 11 migrations from SmallCap to MidCap.
- Historically, stocks migrating from SmallCap to MidCap have outperformed stocks that are migrating between other categories.
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