In today’s briefing:
- Nikkei 225 Index Rebalance Preview (Mar 2024): Update on Ranking, Capping, Funding & Fast Retailing
- FINAL PREDICTIONS: March 2024 Nikkei 225 Rebal (Socionext, Disco, and 1 Consumer Goods Stock to ADD)
- Advantest (6587) | Testing the Limits of AI
- Quiddity JPX-Nikkei 400 Rebal 2024: End-Jan 2024
- Outsourcing (2427 JP): Tender Start Delayed, but Does Bain Need to Bump?
- (Mostly) Asia M&A, Jan 2024: Newmark, Eureka, Aoki, Medley, Payroll, Kerry Express, Genetron, TDCX
- Nihon M&A: Earnings Begin to Recover..
- ANA Holdings -Big Upgrade with Big Read Across for JAL
- M3: Earnings Slowdown Is Inevitable
Nikkei 225 Index Rebalance Preview (Mar 2024): Update on Ranking, Capping, Funding & Fast Retailing
- The review period for the Nikkei 225 (NKY INDEX) March rebalance ends yesterday. There could be three changes at the rebalance with sector balance in focus.
- Depending on the changes, passive trackers will need to buy between 1.3-19x ADV (7.1-24% of real float) on the inclusions and sell between 3.5-47x ADV on the deletions.
- Fast Retailing (9983 JP) avoids capping in March, passives will buy Nitori Holdings (9843 JP), and 25 stocks have over 0.5x ADV to sell as part of the funding trade.
FINAL PREDICTIONS: March 2024 Nikkei 225 Rebal (Socionext, Disco, and 1 Consumer Goods Stock to ADD)
- The Nikkei 225 data for the March 2024 rebalance is a wrap. The names are the same as before but there is likely less DISCO Corp (6146 JP) to buy.
- It’s still big, but smaller than before because of the difference between performance and the change in PAF required to be below 1%. A 4:1 share split would be optimal.
- I recommend a few positioning changes from before, and the Fast Retailing trade loses one short-term option but the longer-term one stays in place.
Advantest (6587) | Testing the Limits of AI
- Advantest reported strong Q3 results, driven by robust demand for memory testers
- The company raised its full-year guidance for revenue and operating profit to inline with analyst estimates
- Advantest’s stock price remains overvalued on AI-hype. We remain bearish with a potential downside of 25%.
Quiddity JPX-Nikkei 400 Rebal 2024: End-Jan 2024
- 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 event to come in August 2024 based on trading data as of end-January 2024.
Outsourcing (2427 JP): Tender Start Delayed, but Does Bain Need to Bump?
- Bain has delayed the Outsourcing Inc (2427 JP) tender start from late January due to more time required to satisfy the European regulatory approval pre-condition.
- Potential reasons for bumping are opportunistic timing, re-rating of Japanese peers, a high minority acceptance rate, and an offer below the mid-point of the IFA DCF valuation range.
- Potential reasons for keeping terms unchanged are no activists, a 52.1% premium to the undisturbed price, and an offer still attractive compared to Japanese peers’ multiples and price ratios.
(Mostly) Asia M&A, Jan 2024: Newmark, Eureka, Aoki, Medley, Payroll, Kerry Express, Genetron, TDCX
- For the month of January 2024, 8 new transactions (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$2bn.
- The average premium for the new transactions announced (or first discussed) in January was ~34%.
- This compares to the average premium for transactions in 2023 (117 transactions), 2022 (106), 2021 (165), 2020 (158), and 2019 (145 ) of 39%, 41%, 33%, 31%, and 31% respectively.
Nihon M&A: Earnings Begin to Recover..
- Nihon M&A Center (2127 JP) reported 3QFY03/2024 results yesterday. Both revenue and OP increased 22.5% and 64.6% YoY respectively and were above consensus estimates.
- M&A revenues for the quarter saw significant growth after seeing two consecutive quarters of YoY decline driven by growth in the no. of deals and revenue per transaction.
- The company’s share price has moved up by around 15% following the earnings announcement, however, share price has been down by more than 30% over the last 12-months.
ANA Holdings -Big Upgrade with Big Read Across for JAL
- ANA has revised its FY24 to March 2024 profit guidance upward on higher revenues; EBIT up from ¥120bn to ¥190bn in line with consensus (AIRCT ¥182bn).
- Air Transportation naturally drives the upgrade, with its EBIT guide up ¥60bn as higher revenues outweigh higher costs.
- This upgrade also has major relevance for JAL, where expect a FY24 EBIT guidance upgrade. We are at ¥177bn versus consensus of ¥142bn/guidance of ¥130bn.
M3: Earnings Slowdown Is Inevitable
- M3 Inc (2413 JP) reported 3QFY03/2024 results today. Both revenue and OP decreased 1.6% and 7.5% YoY respectively and fell below consensus estimates.
- Medical Platform’s revenues declined YoY while overseas segment’s top line growth has been slowing down raising concerns over m3’s growth prospects.
- Given continued decline in earnings, it seems that m3 will struggle to meet its full-year guidance suggesting there is further downside.
💡 Before it’s here, it’s on Smartkarma
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