In today’s briefing:
- Itochu (8001 JP) Launches Lowball TOB for Descente (8114) – Buying China on the Cheap
- Kokusai Electric (6525): Global Index Inclusion Highly Dependent on Free Float
- Itochu Buying Out Sub CI Takiron (4215) Below Book – Too Cheap And Weak Process/Transparency
- Descente (8114 JP): Itochu’s (8001 JP) Light Pre-Conditional Offer
- C.I.TAKIRON (4215 JP): Itochu’s (8001 JP) Light Tender Offer at JPY870
- TOPIX Inclusions: Who Is Ready (August 2024)
- Time to Buy Japan?
- Macnica Holdings (3132 JP) – Q1 FY25 Results Update
- Shofu (7979) – Solid Execution of Overseas Growth and Profitability Expansion
- I Net Corp (9600 JP): Initial Coverage
Itochu (8001 JP) Launches Lowball TOB for Descente (8114) – Buying China on the Cheap
- Today, Itochu Corp (8001 JP) announced it would launch a Tender Offer when approvals were received, to buy out minorities in Descente Ltd (8114 JP) at ¥4,350/share.
- Itochu was buying at that price or higher, in the market, in October 2023. Earnings and book are up since then. Outlook for the Descente China Holdings affiliate? Great.
- The valuation transparency is disappointing. Activists would have 3mos or so to push for more. But with friendly holders, they get very close to the minimum anyway.
Kokusai Electric (6525): Global Index Inclusion Highly Dependent on Free Float
- IPO lock-up expiry of Kokusai Electric (6525 JP) results in a forecasted increase in free float to 35% and fcap of $2.9bn for the August 2024 review.
- Secondary offering of Kokusai Electric (6525 JP) results in a forecasted increase in free float to 60-65% and latest fcap of $3.4bn- $3.7bn for the November 2024 review.
- Inclusion will be determined based on fcap against the fcap threshold. Fcap uncertainty for November is largely driven by stock price fluctuations and the Greenshoe Option.
Itochu Buying Out Sub CI Takiron (4215) Below Book – Too Cheap And Weak Process/Transparency
- Itochu Corp (8001 JP) today announced another TOB to buy out minorities of a sub other than Descente Ltd (8114 JP). C.I. TAKIRON Corporation (4215 JP) at ¥870. A takeunder.
- The stock was up a lot today I assume on news I didn’t see. Slightly lower than the close. Low EV/EBITDA multiple. Lacking transparency.
- The Board is OK selling at below book, but if one takes out net cash, securities, net receivables, and inventory/materials of one quarter of sales, the rest is 0.54x book.
Descente (8114 JP): Itochu’s (8001 JP) Light Pre-Conditional Offer
- Descente Ltd (8114 JP) has recommended a pre-conditional tender offer from Itochu Corp (8001 JP) at JPY4,350, 16.6% premium to the undisturbed price.
- The pre-condition is approval under the competition laws of Japan and China. The offer is anticipated to commence in early November. In January 2019, Itochu completed a hostile partial offer.
- While the offer is attractive vs peer multiples, it is light vs historical trading ranges. Securing the required acceptance rate could prove challenging as the price is light.
C.I.TAKIRON (4215 JP): Itochu’s (8001 JP) Light Tender Offer at JPY870
- C.I. TAKIRON Corporation (4215 JP) has recommended a tender offer from Itochu Corp (8001 JP) at JPY870, a 9.7% premium to the undisturbed price of JPY793 (2 August).
- The lower limit of the tender offer is set at a 10.97% ownership ratio. The tender offer runs from 6 August to 18 September, with payment from 26 September.
- While attractive vs peer multiples, the offer is light due to a skinny takeover premium, an implied P/B below 1x, and 9% below the mid-point IFA DCF valuation.
TOPIX Inclusions: Who Is Ready (August 2024)
- 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.
- SUNWELS Co (9229 JP) and Macbee Planet (7095 JP) moved to the Prime market in July 2024 which means there will TOPIX Inclusions at the end of August 2024.
- Our pre-event pick CELSYS (3663 JP) has seen its price fall by more than 20% during the recent market sell-off and it is close to a key share price threshold.
Time to Buy Japan?
- Nikkei looking oversold on all daily, WEEKLY, and MONTHLY timeframes.
- KWEB records strong bullish engulfing candle on weak overall tape Monday.
- MELI versus AMZN ratio chart favoring the former. Technical complexion change.
Macnica Holdings (3132 JP) – Q1 FY25 Results Update
- In line with the company’s plan –Semiconductors saw a lower segment OP margin (7.3% Q1 FY3/24, 4.0% Q1 FY3/25) with a revenue decline in profitable Industrial (-34.8 YoY) due to weakness in the semiconductor market.
- Compared to the previous quarter, the segment OP margin declined (5.4% Q1 FY3/24, 4.0% Q1 FY3/25) with poorer sales due to a higher contribution from less-profitable Memory.
- However, the revenue decline in Industrial was less pronounced (-2.7% QoQ), a sign of bottoming out.
Shofu (7979) – Solid Execution of Overseas Growth and Profitability Expansion
- Q1 FY3/25 results were ahead of our expectations, with Shofu’s solid execution overseas, with overseas sales growth of 20.2% YoY, and making up 60.5% of the total.
- Its competitive and high-margin Chemical products (CAD/CAM resin materials and restorative filling materials) grew 27.9% YoY and made up 32.6% of total sales (29.1% in Q1 FY3/24).
- This combination of overseas growth and sales mix improvement resulted in a record-high quarterly OPM of 16.4%.
I Net Corp (9600 JP): Initial Coverage
- FY03/24 results: revenue of JPY37.8bn (+7.9% YoY), operating profit of JPY2.9bn (+35.6% YoY), recurring profit of JPY2.9bn (+34.9% YoY), net income attributable to owners of the parent of JPY2.2bn (+63.6% YoY), and dividend per share of JPY53.0 (+JPY5.0).
- All services saw higher revenue YoY, while the company succeeded in implementing price revisions, mainly in the data center business, and reducing overall costs.
- FY03/25 forecast: revenue of JPY40.4bn (+7.0% YoY), operating profit of JPY3.3bn (+12.6% YoY), recurring profit of JPY3.2bn (+9.9% YoY), and net income attributable to owners of the parent of JPY2.6bn (+19.4% YoY).
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