Daily Brief Japan: Mitsui & Co Ltd, Sun Corp, T Gaia Corp, Japan Hotel Reit Investment, ASICS Corp, Softbank Group, Torex Semiconductor, Nakanishi Inc, Intloop and more

• Today after the close, Mitsui & Co Ltd (8031 JP) announced that MS&AD Insurance (8725 JP) and Sumitomo Mitsui Financial Group (8316 JP) would sell 14.9mm shares in an offering.
• This will get priced today or tomorrow, sold to institutional investors. This is ¥107bn, 4 days of ADV and 1% of shares out. It is not dilutive. 
• Mitsui & Co has a buyback program with ¥123bn left til end-Sep, when presumably it will reload. Looks easy today, but measuring Mitsui & Co vs Peers is less flattering.

• Trading comfortably through the Partial Offer terms, Sun Corp (6736 JP) may still do nothing with its Cellebrite DI (CLBT US) holding towards narrowing the NAV discount.
• Preceding my comments on Sun Corp 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%.

• MS&AD Insurance (8725 JP) and Sumitomo Mitsui Financial Group (8316 JP) are looking to raise US$691m from trimming their respective stakes in Mitsui & Co Ltd (8031 JP).
• While this appears to be another cross-shareholding unwind in Japan, we would argue that the selldown isn’t outright well-flagged given the uncertainty of timing the selldown.
• In this note, we will talk about the placement and run the deal through our ECM framework.

• I kind of hate this, but I also can’t ignore it. Apparently, an expensive media service Reporting on Deals or about the Market for Mergers, had an article today.
• Bloomberg carried a small blurb saying there was “speculation on a tender offer…. according to traders”. The stock is untraded, limit up.  
• The most informative comment comes from Japanese stock market portal ‘kabutan‘ which suggests “overseas media” thinks Sumitomo Corp will sell its shares. I look at the possibilities below.

• Japan Hotel Reit Investment (8985 JP) aims to raise around US$214m to partly fund the acquisition of four hotel assets.
• The company has undertaken a number of deals in the past, most of which have managed to perform well.
• In this note, we will talk about the placement and run the deal through our ECM framework.

• Asics has demonstrated impressive growth in gross profit margins, as evidenced by 4.3ppt YoY improvement in Q1 to 54.5%
• Asics has been successful in growing market share and enhancing its brand strength
• For FY2024, we now forecast a 10% YoY increase in sales to ¥628 billion and a 46% rise in OP to ¥79 billion (prev: ¥ 71b)

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Softbank Group

• While current underlying demand has yet to show signs of a strong recovery, progress has been made in inventory adjustments in the distribution supply chain, and TOREX expects a recovery in sales from the 2H of 2024, and the top priority for this term is strengthening sales expansion initiatives.
• Regarding the initial FY25/3 consolidated OP forecast, in addition to a contribution of ¥1,150mn from the +8.7% YoY increase in net sales, the decrease of ¥2,370mn in inventory write-downs in manufacturing cost of sales will drive a strong recovery in OP.
• Although capex is set to decline -31.9% YoY to ¥3,600mn (mainly for equipment being installed in the new Phenitec Kagoshima Fab clean room), having peaked out last term, depreciation will increase +27.7% YoY to ¥3,000mn as the new clean room has started operations. 

• Nakanishi Inc (7716 JP) guided for 25% revenue growth to ¥74B for 2024, driven by an additional ¥12B revenue contribution from DCI and 6% growth in dental business to ¥47B.
• EBITDA is expected to improve from 2025 due to normalization of the personnel expenses and depreciation. 2026 EBITDA margin (26.8%) will improve significantly over 2024 (23.9%).
• Amid slow global consumption, Nakanishi’s cost-effective products offer strong value proposition. The company is expected to meet 2024 guidance and no negative surprise (downward revision in last year) is expected.

• Q1-3 FY7/24 results were in line with unchanged guidance. Gross margin increased from 22.9% to 24.0% YoY, a positive development as the company selectively raised consultant prices.
• With the scope for further increases, we believe the company can achieve sustainable double-digit sales growth in the medium term.
• Profitability is also set to improve via pricing as well as 1) scaling the newly-established strategic consulting subsidiary with high gross margins and 2) improving the sales mix by growing direct business with customers, as opposed to solely acting as freelancers and providing staff from business partners.