In today’s briefing:
- Toyo Construction FY23 Profit Forecast – 105% Payout = 6.5%, Lots of Shares Changing Hands
- MSCI Japan May QCIR: Couple of Potential Changes
- Toyo Construction (1890 JP): YFO Loses Ground to the Board’s New Five-Year Plan
- Sinotrans (598 HK): We Are Concerned About the near Term Challenges
Toyo Construction FY23 Profit Forecast – 105% Payout = 6.5%, Lots of Shares Changing Hands
- Two weeks ago, Toyo Construction (1890 JP) released a new Mid-Term Management Plan with a new investment plan, and a new capital plan (100% payout, ¥50/share minimum div til Mar-2026).
- Obvious goal: get the stock above ¥1,000/share so YFO’s ¥1,000 bid looks unattractive. Then they attacked on a FEFTA basis, saying YFO’s foreign entities need permission to go over 10%.
- Now Toyo has released a March 2024 forecast, with a ¥63/share dividend and 105% guided payout. The stock popped. LOTS of shares trading. Now only up small.
MSCI Japan May QCIR: Couple of Potential Changes
- Based on the last close, we expect Kawasaki Kisen Kaisha (9107 JP) to replace Nihon M&A Center (2127 JP) in the MSCI Japan Index at the May QCIR.
- Passive trackers will need to buy less than 1x ADV on Kawasaki Kisen Kaisha (9107 JP) while selling over 5x ADV on Nihon M&A Center (2127 JP).
- Kawasaki Kisen Kaisha (9107 JP) trades cheaper than its closest peers and there are some interesting market neutral trades there.
Toyo Construction (1890 JP): YFO Loses Ground to the Board’s New Five-Year Plan
- The Toyo Construction (1890 JP) Board has tried every tactic to delay YFO’s JPY1,000 tender offer. The Board’s new five-year medium-term management plan tilts the fight in its favour.
- The Board’s new management plan, particularly the dividend payout, now provides shareholders with a credible alternative to accepting YFOs’ tender offer. The payout ratio for FY23-FY25 is set at 100%.
- YFO’s primary tactic is to replace the Board at the June AGM, but shareholders have less reason to support it. Improving sentiment and the offer continue to underpin the shares.
Sinotrans (598 HK): We Are Concerned About the near Term Challenges
- While we like Sinotrans (598 HK) in the long term, we are caution that 1Q23 result may be disappointing. Its 4Q22 earnings already showed 49.1% YoY and 73.3% QoQ decline.
- Indicators including China’s PMI new export orders, export growth, container shipping freight rates (SCFI) and airfreight rates all showed that the recovery trend is weak.
- 9% of FY22 profit is from exchange gain as Rmb depreciated, and this may not happen again. Consensus forecast of just 10% decline in FY23 net profit seems overly optimistic.
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