In today’s briefing:
- Kenedix Office/Resi/Commercial Three-Way Merger – Size Matters and Index Flows Do Too
- Kenedix Merger: Office, Residential, Retail & Index Implications
- Kenedix Office Investment (8972 JP): Merger with Kenedix Residential and Kenedix Retail REIT
- Secom (9735) | Share Price Surge Expected as Activist Proposals Gain Attention
- Recruit Holdings: Recent Rally in Share Price Is Unwarranted
- Carta Holdings (3688 JP) – 1Q FOLLOW-UP
- Can the Gender Wage Gap Be Solved Simply by Investors Demanding Improvements from the Company?
- Big Apparel Revival: Onward up Again, Sanyo Finally Makes a Profit
Kenedix Office/Resi/Commercial Three-Way Merger – Size Matters and Index Flows Do Too
- Today after the close, Kenedix Office Investment Co (8972 JP), Kenedix Retail REIT (3453 JP), and Kenedix Residential Investment (3278 JP) announced a three-way merger for Nov 1.
- Kenedix Office REIT (KDO) will be the surviving entity, and what is now three REITs of ¥150-250bn in size will become one diversified REIT of ¥630-650bn.
- That will trigger a size uplift and should also trigger index inclusion.
Kenedix Merger: Office, Residential, Retail & Index Implications
- Kenedix Office Investment Co, Kenedix Residential Investment and Kenedix Retail REIT have announced a three-way absorption merger to create Kenedix Realty Investment Corporation.
- The increased size and liquidity of the merged entity will put the stock on the radar of active investors and there could be a re-rating higher.
- There will be some passive flows into the merged entity at the time of merger implementation and this will help the stock outperform its peers.
Kenedix Office Investment (8972 JP): Merger with Kenedix Residential and Kenedix Retail REIT
- The merger ratio is 0.67 Kenedix Office Investment Co (8972 JP)/KDO units per Kenedix Residential Investment (3278 JP)/KDR unit and 0.84 KDO units per Kenedix Retail REIT (3453 JP)/KRR unit.
- The merger is sensible due to scale (the merged entity will be the third-largest J REIT by asset size), expansion opportunities and improved capital recycling.
- The merger requires approval from all three sets of unitholders. We think this is likely as the deal metrics are fair for all three sets of unitholders.
Secom (9735) | Share Price Surge Expected as Activist Proposals Gain Attention
- Secom’s share price has surged by 8% following shareholder proposals submitted by Dalton Investments, raising expectations for potential approval of a 10% share buyback and its impact on stock price.
- Secom, operating in a mature industry with limited growth prospects, faces challenges in deploying capital and maintaining consistent earnings growth, leading to an accumulation of capital on its balance sheet.
- While Dalton’s proposals may not gain sufficient support to pass at the upcoming AGM, the potential involvement of other activists warrant a bullish outlook.
Recruit Holdings: Recent Rally in Share Price Is Unwarranted
- Recruit’s share price been up +13% YTD and gained more than 22% over the last 30-days with the US Dept of Labour releasing job data for April 2023.
- Job openings were 10.1m in April 2023 vs estimates of c. 9.4m which created positive sentiment over labour market’s resilience to economic turmoil. However, April numbers were 13.5% down YoY.
- Recruit Holdings (6098 JP) is currently trading at a lofty FY+2 EV/EBIT multiple of 17.9x despite earnings expectations deteriorating, we are set to benefit nicely on the short side.
Carta Holdings (3688 JP) – 1Q FOLLOW-UP
- In 1Q FY23/12, CARTA Holdings posted a 23.3% YoY increase in transaction volume for programmatic TV commercial service TELECY, and a 2.8-fold increase in gross sales in the retail domain, showing steady performance in the mass retail domain, which the company has positioned as a priority area in its medium-term management plan.
- On the other hand, the weak macro environment continued to weigh on double-digit sales declines in reservation-based ads, resulting in a 7.7% YoY drop in sales and a 59.3% drop in operating profit overall.
- YoY comparisons will ease off from the next quarter, but with 2Q usually being a slow period for advertising and the lack of activity from advertisers in the new fiscal year from April onward, earnings are expected to recovery smoothly rather than sharply.
Can the Gender Wage Gap Be Solved Simply by Investors Demanding Improvements from the Company?
- The fact that men occupy most of the highly compensated positions has increased the wage gap between men and women, so solutions must start with correcting the male-dominated social structure.
- Not only is no acceleration seen in PM Kishida’s target for % of female executives by 2030, but it’s only goal, not commitment, as it applies only to top-tier companies.
- At this point, the only thing that can be done is for investors who have analyzed human capital disclosures in annual securities reports to persistently press companies to make improvements.
Big Apparel Revival: Onward up Again, Sanyo Finally Makes a Profit
- FY2022 was the best year in a decade for Japan’s big apparel firms. Brands benefitted from the return to shops, particularly department stores.
- Some of the leaders used the pandemic to make further progress in rationalisation, diversification and omnichannel, creating solid foundations for further growth in market share.
- Sanyo Shokai finally made a profit but has stuck to what it knows, which may lead to problems once the rebound dividend wanes.
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