In today’s briefing:
- Huge Denso (6902) Secondary Sale by Toyota Group – Admiral Ackbar Says “It’s A Trap!”
- Denso Offering, Buyback, and New Cross-Holding Reduction Policy – It WAS a Trap
- StubWorld: Toyota Group To Sell 10% of Denso; Adelson Selling LVS
- Denso (6902 JP): US$4.0 Billion Secondary Offering and US$1.4 Billion Buyback
- Japan – A Last Look at Shorts on Some Interesting Stocks & Positioning
- Denso Corp Placement – Toyota to Raise US$4.4bn, as Expected
- Quiddity JPX-Nikkei 400 Rebal 2024: End-Nov 2023
- Santen Pharmaceutical (4536 JP): Strong H1 Performance; FY24 Guidance Raise; Rich Pipeline
- Headline Is Eye Catching, but the Revised Voting Criteria Do Not Affect Most Companies
- 3Q Follow-Up – Golf Digest Online (3319 JP)
Huge Denso (6902) Secondary Sale by Toyota Group – Admiral Ackbar Says “It’s A Trap!”
- Yesterday, Reuters reported that multiple Toyota Group companies would sell ~10% of Denso Corp (6902 JP) worth ¥700bn in a secondary share sale by year-end.
- The sellers would be Toyota, selling down to just over 20%, Toyota Industries (6201) (selling down a bit more than half, and Aisin Seiki (7259 JP) selling its 2% stake.
- Denso would buy back shares. This whole thing is both interesting and complicated so I discuss the interesting complications below. It looks bigger than it probably is.
Denso Offering, Buyback, and New Cross-Holding Reduction Policy – It WAS a Trap
- 15 minutes after I published what I thought was a considered analysis, Denso dumps the details. I thought it might be a trap. It looks like a trap.
- A holistic view of the three different documents here suggests, indeed, “It was a trap”.
- This giant offering is not bearish overhang but likely tilts bullish with greenshoe support, a large buyback, a new cross-holding reduction policy, and the follow-on effects from that.
StubWorld: Toyota Group To Sell 10% of Denso; Adelson Selling LVS
- The Toyota Group of companies are proposing to reduce their holdings in Denso (6902 JP) by selling about 10% by year-end, in a share sale worth ~$4.7bn.
- Preceding my comments on Toyota Industries (6201 JP) / Toyota Motor (7203 JP) – and Las Vegas Sands (LVS US) – are the current setup/unwind tables for Asia-Pacific Holdcos.
- These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.
Denso (6902 JP): US$4.0 Billion Secondary Offering and US$1.4 Billion Buyback
- Denso Corp (6902 JP) announced a secondary offering of up to 294.8 billion shares (including overallotment) and a buyback (maximum shares of 125 million or maximum value of JPY200 billion).
- Denso also announced a cross-holding reduction policy. In an unspecified timeframe, it will sell part of its holdings in Toyota Industries (6201 JP) and Aisin (7259 JP).
- Looking at recent large Japanese placements is instructive to understand the potential offer price. The pricing date will fall between 13 and 18 December (likely 13 December).
Japan – A Last Look at Shorts on Some Interesting Stocks & Positioning
- There should be liquidity events on Persol Holdings, Hakuhodo Dy Holdings, Welcia Holdings, GMO Payment Gateway, CyberAgent, Kobayashi Pharmaceutical, NGK Insulators, Lixil Group, Kurita Water Industries and Keio Corp tomorrow.
- On average, the stocks have underperformed the Nikkei 225 Index over the last 2-3 months but there has been near-term outperformance.
- There has been a big increase in shorts on the stocks over the last couple of months and positioning varies across stocks.
Denso Corp Placement – Toyota to Raise US$4.4bn, as Expected
- Following yesterday’s news release by Reuters that Toyota Motor (7203 JP) could sell up to 10% of Denso Corp (6902 JP), the deal was officially launched today.
- Toyota is the company’s largest shareholder and its largest customer.
- We have covered the deal background in our earlier note, Denso Corp Placement – Possible Placement by Toyota to Raise US$4.7bn. In this note, we talk about the final terms.
Quiddity JPX-Nikkei 400 Rebal 2024: End-Nov 2023
- JPX-Nikkei 400 is composed of common stocks listed on the Tokyo Stock Exchange. It is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents.
- A periodic review is conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year. We look at the rankings of the potential ADDs/DELs every month.
- Below is a look at potential ADDs/DELs for the JPX-Nikkei 400 Index Rebal to come in August 2024 based on trading data as of end-November 2023.
Santen Pharmaceutical (4536 JP): Strong H1 Performance; FY24 Guidance Raise; Rich Pipeline
- Santen Pharmaceutical (4536 JP) reported double-digit growth in revenue and core operating profit, and triple-digit growth in net profit in H1FY24. Overseas business grew 30% and remained the main driver.
- Santen raised FY24 guidance for the second time due to the stronger-than-expected sales from overseas markets, reviewed impact of generics in Japan, and continued progress in company-wide cost optimizations.
- Recently, the company has received European Commission approval for a new ophthalmic drug for lowering of intraocular pressure (IOP) in open-angle glaucoma and ocular hypertension.
Headline Is Eye Catching, but the Revised Voting Criteria Do Not Affect Most Companies
- The “minimum majority of outside directors” is an eye catcher, but it does’t affect most companies because the 1/3 outside director ratio applies if a nominating committee is in place.
- Since companies with majority of independent directors are 12.1% in prime market, the objective becomes to achieve the minimum requirement (1/3 INEDs), and few companies engage in further improving practices.
- Companies with over 50% independent director have extremely superior market values in capitalization, ROE, ROA, and Tobin’s Q. Therefore, the acceleration of increasing independent director ratios should be seriously implemented.
3Q Follow-Up – Golf Digest Online (3319 JP)
- GDO announced 3Q cumulative (9M) FY23/12 consolidated financial results at 15:00 on Monday 11/13.
- Headline figures were net sales +15.6% YoY (see PP2-4 for brief explanations by segment), EBITDA -4.4%, OP swung sharply into loss (see P5 for OP factor analysis by segment) due to GW etc. amortization, ordinary profit -73.8% due to the increase in interest expense in addition to the OP loss, and profit attributable to owners of parent -90.5%, mainly due to the disappearance of the extraordinary gain on debt forgiveness of the COVID PPP loan program in the US in Feb-2022.
- As difficult market conditions in the domestic market are expected to continue, GDO revised down full-term FY23/12 guidance.
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