In today’s briefing:
- Japan – Increase in Shorts on Some Interesting*** Stocks
- IJTT (7315 JP): SPARX Group’s Tender Offer at JPY812
- Asics (7936) | Running the Numbers
- IJTT (7315 JP) – A Truly Offensive Takeover Price and Process To Buy Out Minorities at 0.46x Book
- Oizumi Mfg (6618) Gets Takeout from Parent Ferrotec (6890) – Probably Cheap, Disappointing Process
- Merger Arb Mondays (13 Nov) – Benesse, JSR, IJTT, Shidax, Cybernet, CMIC, IRC, Hollysys, Healius
- Japan Post Insurance: Embedded Value Unlikely to Benefit from a Rate Increase
- Screen Holdings (7735 JP): FY Guidance Up, 2H Guidance Down
Japan – Increase in Shorts on Some Interesting*** Stocks
- Persol Holdings, Hakuhodo Dy Holdings, Welcia Holdings, GMO Payment Gateway, CyberAgent Inc, Kobayashi Pharmaceutical, NGK Insulators, Lixil Group, Kurita Water Industries and Keio Corp have underperformed the Nikkei 225 recently.
- The underperformance could lead to selling from global passive trackers and liquidity events on some of the stocks at month-end.
- There has been an increase in short interest on most stocks over the last week as positioning for the liquidity event ramps up.
IJTT (7315 JP): SPARX Group’s Tender Offer at JPY812
- IJTT Co., Ltd. (7315 JP) has recommended Sparx Group (8739 JP)’s offer of JPY812 per share, an 18.5% and 16.0% premium to the undisturbed (9 November) and last close price, respectively.
- The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the tender offer is set at a 23.48% ownership ratio.
- Despite the modest premium, the offer represents a high five-year share price. The minimum acceptance condition requires a 41.3% minority acceptance rate.
Asics (7936) | Running the Numbers
- ASICS reports solid Q3 results, featuring a 14.5% rise in net sales, 31% rise in operating profit, improved gross margin, and digital growth.
- ASICS revises FY23 outlook with increased sales and operating profit. New OP guidance of Y52b is inline with consensus
- Market to focus on new Mid-Term Plan (end-Nov). Valuation at 16x forecast EBIT still a discount to average 18x multiple.
IJTT (7315 JP) – A Truly Offensive Takeover Price and Process To Buy Out Minorities at 0.46x Book
- A Fund named Mirai Creation Fund, investing in five “fields” “vital to the future” (“intelligent technologies”, robotics, hydrogen-economy, electrification, and “new materials”) will buy out casting/forging mainstay IJTT.
- The look and feel of this fund screams “lead me to the future”, so of course, the buy-out is being done with 26% equity, 74% debt. Levered is good.
- That’s to buy at 0.46x PBR. Equity check is 12% of net assets. The Board says “yes” because it will lead to “improvement of corporate value”. Unfortunately, not for shareholders.
Oizumi Mfg (6618) Gets Takeout from Parent Ferrotec (6890) – Probably Cheap, Disappointing Process
- Ferrotec Corp (6890 JP) on Friday announced a takeover for subsidiary Ohizumi Mfg (6618 JP) on Friday. There will be synergies and growth and corporate value increase.
- The takeover price is not overly high, and includes no measure of synergies – not even the DCF value of delisting the company (no listing/filing/IR/legal fees/costs).
- I think this gets done. It is too closely held, there are few foreigners in it, and it’s not large enough for an activist to care.
Merger Arb Mondays (13 Nov) – Benesse, JSR, IJTT, Shidax, Cybernet, CMIC, IRC, Hollysys, Healius
- We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
- Highest spreads – 111 Inc (YI US), Eoflow (294090 KS), Benesse Holdings (9783 JP), Hollysys Automation Technologies (HOLI US), Irc Ltd (1029 HK), IJTT Co., Ltd. (7315 JP).
- Lowest spreads – Azure Minerals (AZS AU), Pact Group Holdings (PGH AU), T&K Toka Co Ltd (4636 JP), Tietto Minerals Ltd (TIE AU), Chindata Group (CD US).
Japan Post Insurance: Embedded Value Unlikely to Benefit from a Rate Increase
- Japan Post Insurance might seem undervalued based on a regression analysis, but its relatively strong RoE was due to extraordinary gains.
- The company has a much larger portion of its investment securities being carried at cost on the balance sheet vs. its peer, Dai-ichi Life.
- Against the backdrop of Japan’s “higher for longer” theme, its embedded value growth could be under more pressure due to ANW’s m-t-m adjustments and very weak new business value.
Screen Holdings (7735 JP): FY Guidance Up, 2H Guidance Down
- The share price has risen by more than 20% in the past month as 1H results beat guidance, FY guidance was raised and the yen weakened.
- The 2-for-1 stock split may also have attracted retail investors. But the new FY guidance implies lower 2H guidance.
- The outlook is for higher but volatile sales and profits. Valuations are reasonable but not compelling. Wait for a pullback.
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