Daily Brief Japan: Modec Inc, Ushio Inc, Square Enix Holdings, Longfor Properties, Sodick Co Ltd and more

• In March, Modec Inc (6269 JP) announced the TSE had said Modec at 29.3% (end-Dec-23) was below the required 35% tradable shares level required for continued listing on TSE Prime. 
• It announced a “Basic Plan” to comply with the criteria which involved convincing one of the three major corporate holders to sell some. They needed to sell about 6%.
• Mitsui E&S has announced it will sell 32%, and 37% including greenshoe. This is overdoing it in a huge way. Mitsui E&S is getting out. This is a re-IPO.

• Modec Inc (6269 JP) has announced a secondary offering of up to 25.2 million shares (including overallotment). The largest shareholder, Mitsui E&S Holdings (7003 JP), is the seller.
• MODEC’s goal with the secondary offering is to reconfigure its shareholder mix to have a diverse base of shareholders who support its long-term strategies and a better tradable share ratio.
• Looking at recent large Japanese placements is instructive for understanding the potential offer price. The pricing date will likely fall between 22 and 28 May (likely 22 May).

• Last year with earnings, Ushio Inc (6925 JP) announced a HUUUGE buyback discussed in  HUUUGE Ushio (6925) Buyback. The headline was 17% of shares out. They ended up buying 13.2%. 
• Last year the stock popped on the news. Then shares went sideways for months. Then they went up on stable (bad) earnings guidance in H2. Today they beat Q3-updated guidance.
• But today they announced a “new growth strategy” to 2030, and guided to a SHARP (-60%) drop in OP and NP to March 2025, and announced a HUUUGE Buyback. Again.

• There are 15 stocks in Japan that will be sold by passive trackers at the close on 31 May.
• Short interest has been increasing in these stocks over the last few months and there will be covering on implementation date.
• Cumulative excess volume on all stocks has risen in the last couple of months though the pace of the increase has varied.

• Mitsui E&S Holdings (7003 JP) is looking to raise approximately US$451m through a secondary follow-on offering, via selling approximately 21.9m shares (32% of TSO) of Modec Inc (6269 JP)’s stock. 
• The deal is a large one to digest at 81 days of three month ADV. 
• In this note, we will talk about the placement and run the deal through our ECM framework.

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.

• Lippo Karawaci
• Softbank Group

• An uplift in China orders – Q1 FY12/24 results saw a continued decline in sales by 7.4% YoY and 9.3% QoQ.
• However, the core Machine Tools segment saw flat sales QoQ, and order visibility improved with China orders rising by 39.4% QoQ albeit from a low base.
• Cost reduction efforts have commenced and are set to accelerate into Q2 FY12/24 which should improve the scope for profitability, although ultimately this will be sales volume dependent.