In today’s briefing:
- Kansai Electric Power (9503 JP) – Huge Offering Is Smaller Now; Reward/Risk Skews Upwards
- Keisei Electric Jumps 14% on Reports of Murakami Stake
- Kansai Electric Power (9503 JP): The Current Playbook
- StubWorld: Keisei Electric’s Big Gain On Activist Stake News
- Kioxoa Pre-IPO – The Positives – Among the Leaders in Its Space
- Aeon (8267JP): Sales Up, Profit Down
- Concurrent Directorship Issue Calls into Question Effectiveness of Nominating Committee
- Migalo Holdings (5535 Jp) – Upward Earnings Revision Was Within Expectations
- Geo Holdings (2681 Jp) – Sales, OP Fall Despite Strong Core Product Demand
Kansai Electric Power (9503 JP) – Huge Offering Is Smaller Now; Reward/Risk Skews Upwards
- On 13 November, Kansai Electric Power (9503 JP) announced an equity offering to raise capital for capex expenditures over the next several years. It is significantly dilutive.
- The shares responded by falling 23% to 8-months lows of ¥1,850 last Thursday and Friday. That puts the stock at the same forward PER post-offering as it was pre-offering.
- That’s probably not an awful place to own now that the stock will have been slightly de-risked/de-levered.
Keisei Electric Jumps 14% on Reports of Murakami Stake
- Keisei Electric Railway Co (9009 JP) rose 14% after reports that a fund linked to activist investor Murakami bought a stake, while Oriental Land also gained 2.9% in a volatile market.
- Down 50% since February 2024, Keisei Electric seems to have limited downside risks. We believe its valuation could increase if Murakami’s stake leads to activism.
- The long Keisei Electric, short Oriental Land (4661 JP) trade could work well too, especially if Murakami’s activism and the risks to Oriental Land’s guidance materialize.
Kansai Electric Power (9503 JP): The Current Playbook
- Since the US$3.5 billion primary/secondary offering announcement, Kansai Electric Power (9503 JP)’s shares have been down 20.6% from the undisturbed price of JPY2,397 per share (13 November).
- Looking at recent large Japanese placements is instructive to understand the potential trading pattern. So far, KEPCO’s shares have followed the pattern of previous large placements.
- The offering will likely be priced on 26 November. The average large Japanese placement tends to generate positive returns.
StubWorld: Keisei Electric’s Big Gain On Activist Stake News
- Keisei Electric Railway Co (9009 JP) gained 13.8% yesterday on news that activist investor Murakami-san had acquired a stake.
- Preceding my comments on Keisei Electric are the current setup/unwind tables for Asia-Pacific Holdcos.
- These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.
Kioxoa Pre-IPO – The Positives – Among the Leaders in Its Space
- Kioxia Holdings (6600 JP) is aiming to raise around US$700m (including over-allocation) from its Japan IPO
- It was the world’s largest pure-play NAND flash memory supplier, in terms of both revenue and unit shipments in 2023, according to TechInsights.
- In this note, we talk about the positive aspects of the deal.
Aeon (8267JP): Sales Up, Profit Down
- Post-Covid, Aeon Co Ltd (8267 JP) began to deliver real profit growth but 1H2024 showed it cannot rest on its laurels.
- While it’ll be happy not to be worrying about a takeover bid like its rival, Seven & I, it still doesn’t have a profit machine similar to Seven Eleven Japan.
- Welcia helps and so does expanding e-commerce but there is still plenty of room for cutting overhead.
Concurrent Directorship Issue Calls into Question Effectiveness of Nominating Committee
- The limit is to serve on the boards of two companies concurrently in order to preview the agenda for the monthly board meetings in advance.
- There may be challenges to the effectiveness of the nominating committee of a company that nominates a candidate to serve on the board of directors of three or more companies.
- With the growing demand for female outside board members, it’s hoped that active investment managers will pay attention to the issue of concurrent board membership and make a clear statement.
Migalo Holdings (5535 Jp) – Upward Earnings Revision Was Within Expectations
- On November 7, 2024, Migalo Holdings Inc. (hereafter, the Company) announced its Q2 FY2025/3 earnings results.
- In H1, sales increased 23.3% YoY to JPY 30,001 mn, and operating profit fell 15.6% YoY to JPY 1,935 mn.
- Q1 saw a decline in sales and profit due to the impact from last year’s concentration of new property deliveries.
Geo Holdings (2681 Jp) – Sales, OP Fall Despite Strong Core Product Demand
- Sales and profit fall – Q1-2FY3/25 sales and OP declined as the difficult annual comps for new games and consoles continued into Q2.
- This ate into strong demand for the company’s reuse (second- hand) clothes and used smartphones.
- Q1-2 sales fell 7.4% to ¥199.7bn while OP declined at a faster 25.9% pace to ¥5.4bn.
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