In today’s briefing:
- Outsourcing (2427 JP): Bain-Backed Preconditional MBO Tender Offer at JPY1,755
- TOPIX Inclusions: Who Is Ready (Dec 2023)
- Merger Arb Mondays (11 Dec) – Benefit One, Outsourcing, Tokyo Rakutenchi, CPMC, Weiqiao Textile
- Bain Deal for Outsourcing (2427): Cheeky, Opportunistic, Too Low
- Rohm (6963 JP): Government Subsidy for Power Device Project with Toshiba
- Japan Airport Terminal (9706 JP, SELL, TP: JPY5,364): Weak JPY Can’t Overcome Fundamental Challenges
- Shenzhen Intl (152 HK): Another Monetisation
Outsourcing (2427 JP): Bain-Backed Preconditional MBO Tender Offer at JPY1,755
- Outsourcing Inc (2427 JP) has recommended a Bain-backed preconditional MBO tender offer of JPY1,755 per share, a 52.1% premium to the undisturbed (8 December).
- The offer is light vs. peer and historical multiples and opportunistically takes advantage of the 20% price fall due to the disclosure of employment adjustment subsidies issues on 1 August.
- Based on the irrevocables, the minimum acceptance condition requires a 61.9% minority acceptance rate. The acceptance rate could prove challenging. The tender offer is to start by late January 2024.
TOPIX Inclusions: Who Is Ready (Dec 2023)
- Quiddity’s “Who is Ready” series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.
- One of our TOPIX Inclusion Pre-event names Visional (4194 JP) confirmed it has received approval to move to the Prime Market in December 2023.
- Currently, we are expecting one TOPIX Inclusion at the end of December 2023 and two more at the end of January 2024 (including Visional).
Merger Arb Mondays (11 Dec) – Benefit One, Outsourcing, Tokyo Rakutenchi, CPMC, Weiqiao Textile
- We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
- Highest spreads – Outsourcing Inc (2427 JP), Healius (HLS AU), Irc Ltd (1029 HK), Orecorp Ltd (ORR AU), Hollysys Automation Technologies (HOLI US), Tokyo Rakutenchi (8842 JP).
- Lowest spreads Toyo Construction (1890 JP), IJTT Co., Ltd. (7315 JP), Tietto Minerals Ltd (TIE AU), Azure Minerals (AZS AU), T&K Toka Co Ltd (4636 JP), Benesse Holdings (9783 JP).
Bain Deal for Outsourcing (2427): Cheeky, Opportunistic, Too Low
- On Friday 8 December, Bain announced an MBO with Outsourcing Inc (2427 JP) Chair Haruhiko Doi to take the company private at a 51% premium. Looks good at first glance.
- It is, however, an offer at ~6.6x Management Forecast derived Dec 2024 EBITDA. This for a top player in a fast-growing market where Street/mgmt both see up-and-to-the-right results from here.
- This is a delayed start (late-Jan) for regulatory approvals. It is too cheap. It is blockable. But Doi-san is young at 64yrs old and he could come back years later.
Rohm (6963 JP): Government Subsidy for Power Device Project with Toshiba
- Rohm’s share price was up 6% on Friday, December 8, on the news that the Japanese government will subsidize its collaboration with Toshiba in power semiconductors.
- The subsidy will amount to one-third of the ¥388.3 billion yen the two companies plan to invest in Silicon Carbide and Silicon devices for the electric vehicle and other industries.
- Rohm hit bottom on October 31, management cut FY Mar-24 guidance on November 1 and the market is now looking to recovery. Toshiba will be delisted on December 20.
Japan Airport Terminal (9706 JP, SELL, TP: JPY5,364): Weak JPY Can’t Overcome Fundamental Challenges
- Japan Airport Terminal Co (9706 JP) (JAT) has turnaround and set to resume its earnings growth trajectory thanks to Japan’s brisk air traffic recovery
- However, future growth is increasingly challenging as domestic traffic stalls, and international traffic growth relies on inbound tourists. What happens if tourists decide to go elsewhere?
- Target price JPY5,364 (18% DOWNSIDE) based on 12.7x FY2024 EV/EBITDA (peer group average). SELL, grossly overvalued, Mexican and Chinese airports are far more attractive
Shenzhen Intl (152 HK): Another Monetisation
- The REIT issuance of the Hangzhou and Guizhou logistics assets of Shenzhen International (152 HK) has entered the final stage, reflecting its ability to realise asset values.
- We estimate SZI may book gain of around Rmb300m in 2H23, or more likely 1H24, and this will support good HoH and YoY rebound in its earnings.
- These assets only accounted for 8% and 5% of SZI’s total portfolio area and value, respectively, suggesting there is still immense room for capital gain from its remaining assets.
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