In today’s briefing:
- JAFCO (8595) Succumbs to Even Worse Greenmail – SPECTACULARLY BAD Governance
- Appier (4180) – Down But Not Out; Shareholder Structure Still The Biggest Risk
- Nippon Steel & Mitsui & Co to Buy Out Nippon Steel Trading (9810) At 87% Premium
- ENEOS to Buy Out Tatsuta Electric (5809) At 74% Premium
- Toshiba (6502 JP): Sanctions on YMTC Help Kioxia
- Nippon Steel Trading’s (9810 JP) JPY9,300 Tender Offer from Nippon Steel
- NKY and JPY Trades and Thresholds
- Ryohin Keikaku: Beat On The Cards, Big Moves To Follow
- The Attitude Toward Information Disclosure May Make a Further Difference in Stock Valuations
JAFCO (8595) Succumbs to Even Worse Greenmail – SPECTACULARLY BAD Governance
- Jafco Co Ltd (8595 JP) was the target of activist Murakami-san in August 2022. They threatened a poison pill. Murakami-san sold, then bought to 19.5%. They negotiated. He won.
- His result excluded others. The market did not take it well. Murakami-san rejected taking a 1% hit to original terms (vs reference NAV). JAFCO went back to the drawing board.
- Then submitted to greenmail at a higher price. The first buyback was agreed at ¥2,500 vs ¥2,651 NAV. The new one? ¥2,730-2,840 vs ¥2,513 NAV. Inexplicable – Spectacularly Bad Governance.
Appier (4180) – Down But Not Out; Shareholder Structure Still The Biggest Risk
- Appier Group (4180 JP) had been among our picks for TSE Prime promotion and we had recommended positioning for it. That worked. On 8 Dec they announced the promotion.
- The company is now part of TSE Prime which means a TOPIX Inclusion at end-January and an upweight in April. More than 20% of TSE float to buy by end-April.
- Share price performance has not kept pace with potential, and yesterday’s BOJ decision saw a flurry of volume selling (bailing). Pre-IPO holder overhang may be the biggest “risk” here.
Nippon Steel & Mitsui & Co to Buy Out Nippon Steel Trading (9810) At 87% Premium
- Nippon Steel Corporation (5401 JP) and Mitsui & Co Ltd (8031 JP) today announced they would buy out Nippon Steel & Sumikin Bussan (9810 JP), their steel-trading subsidiary.
- The shares trade near an all-time high, but Nippon Steel is paying an 87% premium. (Interestingly, the high end of the DCF ranges suggest a 280% premium)
- On fundamentals, this could have been higher, but given the shareholder structure, I expect it is a done deal as-is. The Tender Offer should start in February 2023.
ENEOS to Buy Out Tatsuta Electric (5809) At 74% Premium
- ENEOS Holdings (5020 JP) and subsidiary JX Nippon Mining & Metals Corporation announced today it would buy out minorities in miner and refiner Tatsuta Elec Wire & Cable (5809 JP).
- The Tender Offer comes at a 74% premium for their 37% sub. 5% off a 2yr high, 10% off a 20-year high. This is likely to be a “done deal”.
- JX probably starts with ~55% in the bag out of the 66.7% minimum. But the tender doesn’t start for ~ 6 months. Separately, importantly, there is a precedent here.
Toshiba (6502 JP): Sanctions on YMTC Help Kioxia
- The U.S. government put YMTC on its Entity List in early December, effectively cutting it off from U.S. semiconductor equipment companies and other U.S. technology.
- YMTC’s Xtacking architecture was good enough for Apple, but it will now have trouble maintaining its 5% market share, let alone ramping up production of its new 232-layer device.
- This will take some of the competitive pressure off Kioxia and benefit Toshiba, which owns 41% of its shares.
Nippon Steel Trading’s (9810 JP) JPY9,300 Tender Offer from Nippon Steel
- Nippon Steel & Sumikin Bussa (9810 JP) has recommended Nippon Steel Corporation (5401 JP)’s tender at JPY9,300 per share, an 87.5% premium to the undisturbed price and an all-time high.
- The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the offer has been set to meet the 66.67% ownership ratio.
- Mitsui & Co Ltd (8031 JP) will retain its 19.93% stake and together with Nippon Steel account for 55.01% of outstanding shares. Tender starts in late-February subject to antitrust clearances.
NKY and JPY Trades and Thresholds
- Nikkei was touted as our top short bet in Asia and has panned out nicely. 27k sell resistance for a test on sub 26k to probe for a bull reversal.
- USD/JPY sell an uptick near 134. PT at sub 131 and 129.50. Jury still out as to the policy impact on global rates/equities. We are trading a lot like 2018.
- Taiwan and Nifty short targets are reiterated. SPX and NDX levels are in line but price action remains poor to bearish.
Ryohin Keikaku: Beat On The Cards, Big Moves To Follow
- Ryohin Keikaku (7453 JP) rose 24% following an earnings beat in the previous quarter. However, the share price progression afterwards was less than we anticipated.
- Our analysis points to one more big earnings beat as consensus is still conservative on cost assumptions.
- We think Ryohin Keikaku could take another big stride towards our target price following 1QFY23 results, due on the first week of January 2023.
The Attitude Toward Information Disclosure May Make a Further Difference in Stock Valuations
- The less frequently information is disclosed, the greater the impact of single disclosure on stock prices. Fewer quarterly disclosure reduces trading volume, which will have negative impact on stock valuations.
- Companies listed on U.S. market will continue quarterly disclosure, while companies with limited human resources won’t adopt quarterly disclosure. Even within the same sector, companies may adopt different disclosure attitudes.
- Metrical’s analysis shows that the IR factor is highly positively correlated with Tobin’s q. Also, different disclosure stances may emerge depending on the ratio of foreign shareholders.
💡 Before it’s here, it’s on Smartkarma
Sign Up for Free
The Smartkarma Preview Pass is your entry to the Independent Investment Research Network
- ✓ Unlimited Research Summaries
- ✓ Personalised Alerts
- ✓ Custom Watchlists
- ✓ Company Data and News
- ✓ Events & Webinars
