In today’s briefing:
- Keisei Electric Rail (9009): For Relative Value Trade
- Sumitomo Chemical (4005): Up Is Down
- Shin-Etsu (4063) – Too High, Too Fast
- Ono Pharmaceutical (4528 JP): Deciphera Acquisition Will Not Bring Immediate Respite
Keisei Electric Rail (9009): For Relative Value Trade
- The activist investor is back and has demanded further action to unlock value from Keisei Electric Railway Co (9009 JP) management.
- Operational numbers are still healthy, but growth is not as large due to the high base.
- Immediate pressure to divest Oriental Land thus short Oriental Land (4661 JP) and long Keisei.
Sumitomo Chemical (4005): Up Is Down
- Sumitomo issued new guidance for the year to 3/25 that was 40% higher than consensus estimates, but the stock cratered almost 5%.
- We were able to think of at least 6 explanations for this odd reaction – all of them irrational.
- A reasonable person listening to the call should have been pleased by almost all that was new information.
Shin-Etsu (4063) – Too High, Too Fast
- On April 24, Shin-Etsu (4063) posted its fifth consecutive OP decline and guided for a sixth, but the stock has outperformed Topix by 22% in the past 12 months.
- OP for the year ended March 2024 was JPY141.5bn, vs. consensus estimates of JPY168.9bn. This was the fifth consecutive miss, and the fourth of more than 10%.
- The Chinese economy is killing the company’s core core Polyvinyl Chloride Resins business and seemingly interminable inventory issues are holding back a recovery in the semiconductor materials business.
Ono Pharmaceutical (4528 JP): Deciphera Acquisition Will Not Bring Immediate Respite
- Ono Pharmaceutical (4528 JP) is acquiring Deciphera Pharmaceuticals (DCPH US) for $25.60/share in cash through a tender offer. The total equity value of the acquisition is approximately $2.4B.
- Ono is expected to reap the benefit of Deciphera acquisition earliest from FY27. In the short-run, the company’s major problem of loss of revenue will not be addressed.
- Ono needs to stretch its balance sheet to fund Deciphera acquisition. The acquisition will be earnings dilutive for Ono. Pricey valuation of the deal is another deterrent.
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