Daily BriefsIndustrials

Daily Brief Industrials: Outsourcing Inc, Visional , Benefit One Inc, ROHM Co Ltd, Japan Airport Terminal Co, Shenzhen International and more

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

By Arun George

  • 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)

By Janaghan Jeyakumar, CFA

  • 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). 


Bain Deal for Outsourcing (2427): Cheeky, Opportunistic, Too Low

By Travis Lundy

  • 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

By Scott Foster

  • 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

By Mohshin Aziz

  • 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

By Osbert Tang, CFA

  • 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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