In today’s briefing:
- Itochu (8001 JP) Lowball TOB for Descente (8114) Is Here – Trades Tight But No Big Holder Appeared
- T-Gaia (3738 JP) – Potential Premium Takeout Story Turns To An Ugly Takeunder
- T-Gaia (3738 JP): Reality Check as Bain Launches a Takeunder
- Quiddity JPX-Nikkei 400 Rebal 2025: End-Sep 2024 Ranks
- Softbank (9984 JP) – Despite the High NAV Discount, We See Greater Headwinds; Downgrading to Neutral
- Descente (8114 JP): Itochu’s (8001 JP) Tender Offer Launches
- Tokyo Metro IPO – Thoughts on Valuation
- Sanwa Holdings (5929) | Revolving Door of Activist Influence
- Not Many Companies Have Implemented Full-Scale Improvements in Return on Capital
- Honda Motor Company: Will The Much Needed Strategic Shift Towards EVs Finally Pay Off? – Major Drivers
Itochu (8001 JP) Lowball TOB for Descente (8114) Is Here – Trades Tight But No Big Holder Appeared
- Today, Itochu Corp (8001 JP) announced that it had received SAMR approval and would launch its Tender Offer to take private its affiliate, Descente Ltd (8114 JP).
- As warned last year, Descente is cheap on a forward basis due to very strong growth and profitability of Descente China Holdings but Itochu can downplay that future.
- And indeed, it appear they did, and unless someone takes them to task, this probably gets done. So far, nobody has.
T-Gaia (3738 JP) – Potential Premium Takeout Story Turns To An Ugly Takeunder
- Today, just before the close, the Nikkei put out a scoop that Bain would buy T Gaia Corp (3738 JP) for ¥140bn. Sounds big. It was a 30% discount.
- There is a three Tender Offer process whereby minorities, who could be squeezed out regardless, are offered the opportunity to block the deal by not tendering at ¥2,670.
- This not-quite “majority of minority” of the super-minority is an interesting governance condition established by the Special Committee. It bears some study.
T-Gaia (3738 JP): Reality Check as Bain Launches a Takeunder
- T Gaia Corp (3738 JP) disclosed a Bain tender offer at JPY2,670, a 35.9% premium to the undisturbed price but a 27.2% discount to the last close.
- Bain has set the minimum number of shares to be purchased at a 12.67% ownership ratio to appease the Board, which has a neutral recommendation.
- Bain hopes the offer’s harsh reality check will burst the share price bubble, nudging minorities to accept. An auction process suggests that the chance of a competing offer is low.
Quiddity JPX-Nikkei 400 Rebal 2025: End-Sep 2024 Ranks
- 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 potential forward inclusions and removals every month.
- Below is a look at potential Inclusions and Removals for the JPX-Nikkei 400 Rebalance to come in August 2025 based on trading data as of end-September 2024.
Softbank (9984 JP) – Despite the High NAV Discount, We See Greater Headwinds; Downgrading to Neutral
- The SoftBank NAV discount is historically high, which makes it appear optically attractive; despite this, we turn neutral on SoftBank group from our previous positive recommendation, due to its headwinds
- JPY strength is a key challenge, especially since the new Japanese prime minister supports the BoJ normalising monetary policy; this means BoJ tightening whilst many other central banks are easing
- Arm Holdings’ super premium valuation versus its peers is another potential headwind for SoftBank group shares and NAV, combined with the high correlation between Arm Holdings and SoftBank group shares
Descente (8114 JP): Itochu’s (8001 JP) Tender Offer Launches
- Descente Ltd (8114 JP) has announced that Itochu Corp (8001 JP)’s tender offer precondition has been satisfied. The offer terms are unchanged at JPY4,350 per share.
- The offer is arguably light due to the peer re-rating and historical trading ranges. It is also below the midpoint of the special committee’s IFA DCF valuation range.
- Nevertheless, the offer will likely succeed. There is no vocal opposition, the volume traded through terms is low, and the offer implies a premium multiple compared to peers.
Tokyo Metro IPO – Thoughts on Valuation
- Tokyo Metro (9023 JP)‘s shareholders aim to raise up to US$2.3bn in its Japan IPO.
- Tokyo Metro (TKM) is one of the two metro network operators in the Tokyo region. It operates nine subway lines with a total of 180 stations.
- We have looked at the company’s past performance in our previous notes. In this note, we will talk about valuations.
Sanwa Holdings (5929) | Revolving Door of Activist Influence
- ValueAct Capital took a significant 5.9% stake in Sanwa. Dalton Investments has also been a shareholder, but had most recently sold down to under 5% in June
- Sanwa Holdings (5929 JP) presents an attractive investment opportunity rooted in its strong global market position, undervalued stock price, and growth potential
- We see 30% upside, based off historical revenue growth, 11% EBIT margins, and an exit multiple of 12.5x (global peers).
Not Many Companies Have Implemented Full-Scale Improvements in Return on Capital
- Certainly, the “TSE’s request” has begun to change companies’ mindsets, but what we focus on now is whether they have put the plan into action and whether it’s producing results.
- The importance of investor engagement is also indicated in the Japan Investor Relations Association’s survey summary. Companies that receive overseas investor engagement are furthering their efforts to improve profitability.
- Even among companies with high IR awareness, few have taken serious steps to reform their business portfolios, as under 60% have begun to reform business portfolios.
Honda Motor Company: Will The Much Needed Strategic Shift Towards EVs Finally Pay Off? – Major Drivers
- Honda Motor Co., Ltd. recently reported its financial results for the first quarter of fiscal year 2025, marking a period of significant transformation and adaptation in the face of ongoing global economic fluctuations, particularly in the key markets like the U.S., China, and new energy vehicle (NEV) sectors.
- This summary provides a balanced view, underscoring both opportunities and challenges the company faces as it navigates complex market dynamics.
- Baptista Research looks to evaluate the different factors that could influence the company’s price in the near future and attempts to carry out an independent valuation of the company using a Discounted Cash Flow (DCF) methodology.
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