In today’s briefing:
- TOPIX Inclusions: Who Is Ready (Nov 2023)
- Sankyo (6417) – Second Go-Round for a BIG Buyback
- Japan H1 Bank Earnings: Last Minute Update; Suruga Bank Reacts Well
- Nintendo (7974) | Stock Performance Ahead ‘Switch 2’ Speculation
- CMIC Holdings (2309 JP): MBO Tender Offer at JPY2,650
- The Problem Is that Companies that Don’t Want to Do Discloser in English Are Listed on Prime Market
- Shofu (7979 JP) – Competitive Advantage Driving Predictability in Earnings Growth
- Ono Pharmaceutical (4528 JP): Record H1 Earnings; Forxiga Is Flying High; FY24 Guidance Updated
TOPIX Inclusions: Who Is Ready (Nov 2023)
- Quiddity’s “Who is Ready” series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.
- Our main pre-event candidate CELSYS (3663 JP) has outperformed TOPIX by ~12.6% since 1 Sep (when it was highlighted) and 6 Nov 2023.
- There are three TOPIX Inclusion events confirmed for the end of November and two other interesting pre-event names we are closely monitoring.
Sankyo (6417) – Second Go-Round for a BIG Buyback
- Back in late September, Sankyo Co Ltd (6417 JP) announced a 10mm share buyback along with a new dividend policy. Only 4.22mm shares showed up to sell.
- The largest holder – Exec Chair Busujima-san – sold 2.22mm shares under his own name and his company’s name. Hikari Tsushin, which had been selling in the market, didn’t participate.
- Now Sankyo has launched another 10mm share ToSTNeT-3 buyback tomorrow (8 Nov) AM at ¥6,099/share. They may not complete. But they may continue buying later. They have oodles of cash.
Japan H1 Bank Earnings: Last Minute Update; Suruga Bank Reacts Well
- I wrote Japan H1 Bank Earnings: Interest/Fees Up, Expenses/Credit Costs Down – Opportunity Abounds, Still last week mentioning the trends in guidance revisions.
- Since then, five have reported H1. +20%, +53%, +23% vs guidance; +25.6%, and +28.2% vs Last Year. Eight more have added new guidance, weighted average H1 up 48%.
- Four more report tomorrow, eight on Thurs, 43 on Friday. The Top 5 are all next Mon/Tues. Watch for comments about portfolio restructuring efforts in H2 as market yields rise.
Nintendo (7974) | Stock Performance Ahead ‘Switch 2’ Speculation
- Nintendo’s Q2 results show solid performance but still fall short of expectations, with a conservative full-year profit outlook
- The impending release of “Switch 2” in 2H24 raises questions about the company’s ability to replicate the original Switch’s success
- We see the current 11x EV/EBIT as fair for the stock and do not anticipate a valuation breakout until the market can assess the credentials of “Switch 2”
CMIC Holdings (2309 JP): MBO Tender Offer at JPY2,650
- CMIC Holdings (2309 JP) has recommended an MBO tender offer of JPY2,650 per share, a 55.9% premium to the undisturbed price (7 November).
- 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 41.29% ownership ratio.
- Irrevocables to accept represent a 23.29% ownership ratio. While the offer is light vs. peer multiples, the minimum acceptance condition requires a 35.1% minority acceptance rate, which is doable.
The Problem Is that Companies that Don’t Want to Do Discloser in English Are Listed on Prime Market
- Companies disclosing in English increased to 97.2% in 2023 prime market. However, only 15% of overseas investors responded “satisfied,” indicating a continuing mismatch between disclosure content and investor needs.
- TSE will prioritize the documents according to whether disclosure requires immediacy, and divide companies into mandatory companies and effort companies according to the size and foreign ownership of a company.
- However, disclosure in English of lower priority documents would be more difficult. Separating companies would allow the prime market to include companies that don’t need to interact with global investors.
Shofu (7979 JP) – Competitive Advantage Driving Predictability in Earnings Growth
- Q1-2 FY3/2024 results were in line with upwardly-revised company guidance, with gross margins reaching 60.4% and a record-high quarterly level of 61.0% for Q2 FY3/2024.
- This was driven by overseas growth for Shofu’s competitive Chemical Products (CAD/CAM resin materials and restorative filling materials) and a forex tailwind, with overseas sales making up 57.6% of total sales.
- We have raised our earnings estimates for FY3/2024 and beyond to reflect Shofu continuing to gain market share overseas, and the resultant improvement in the sales mix
Ono Pharmaceutical (4528 JP): Record H1 Earnings; Forxiga Is Flying High; FY24 Guidance Updated
- Ono Pharmaceutical (4528 JP) reported double-digit growth in revenue, operating profit, and net profit in H1FY24. Opdivo recorded revenue of ¥75B (+7% YoY). Forxiga revenue jumped 36% YoY to ¥36B.
- Encouraged by strong performance of Forxiga and receipt of lump-sum income associated with the patent litigation settlement, Ono has raised FY24 guidance by mid-to-high single-digit percentage across all the parameters.
- The company aims to overcome Opdivo patent cliff and accelerate growth by launching multiple products in the U.S. and Europe with large addressable markets.
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