Daily Brief Japan: Nec Networks & System Integr, Seven & I Holdings, Topcon Corp, Fuji Soft Inc, Fast Retailing, TSE Tokyo Price Index TOPIX, Raksul Inc, Zappallas Inc, GiG Works, Gurunavi Inc and more

• Two days before the close of its TOB on subsidiary Nec Networks & System Integr (1973 JP), NEC Corp (6701 JP) announced it had no plans to raise the price. 
• The next day, the second largest shareholder reported a stake increase from 11.68% to 13.12%. That changes the dynamic further, and a change in terms was likely. 
• Today post-close, NEC extended the Tender Offer by 10 days. It is worthwhile understanding the likely current disposition of shares. 

• Recent reports suggest an MBO if firming up, with partial sale of US to ACT and even the Japan CVS business so a big value solution for all concerned.
• Not so fast: an ACT purchase of 7-11 US looks more likely to be blocked given yesterday’s ruling on the merger of grocery giants Kroger and Albertsons.
• The valuation of the Japan business may need a correction too if the last six months of poor numbers continue – given this is because of price perception, they may.

• Topcon Corp (7732 JP) shares rose 51% over two days, confirming a Bloomberg report that is conducting a privatisation auction. The process is in the second round of bids.
• Exploring the privatisation process is unsurprising, as Topcon has materially underperformed the Nikkei 225 since its last medium-term management term plan was announced on 12 May 2023.
• Despite the share price pop, Topcon trades at a discount to median peer multiples. At an offer of JPY3,000, Topcon would trade in line with median peer multiples.

• The battle for Fuji Soft Inc. (9749 JP) took an unexpected turn. Bain revised its offer to JPY9,600, a 1.6% premium to KKR’s JPY9,451 second tender offer. 
• Bain has introduced a minimum number of shares to be purchased criterion. Bain’s offer is structured to address most but not all of the special committee’s reasons for opposition.
• The Board’s first reaction will be to ask KKR, its preferred bidder, to bump. Given the amount of time and effort KKR has put into this bid, it will bump. 

• Inditex’s rare quarterly miss on sales and profit, driven by currency fluctuations, may heighten sensitivity around Fast Retailing’s upcoming Q1 results
• For Fast, the risk would be a top-line miss given high valuation multiples and elevated expectations
• Over the past several quarters, Fast’s superior top line growth has supported higher valuation multiples. We expect 9% revenue growth in Q1

• One year has passed since the disclosure of sustainability information in annual securities reports, and the FSA is considering restructuring its disclosure guidelines to support sustainability disclosure by listed companies.
• Sustainability information in annual securities reports is shifting from “what should be stated” to “what content should be stated,” and the volume of information is increasing accordingly.
• Valuable information is that investors can understand what initiatives the company has implemented to address the challenges, the goals and timelines it has set, and whether its progress is justified.

• Raksul operates niche B2B online marketplaces in Japan with exceptional shareholder alignment
• Recent dip in stock value due to market trends, but shows promise for 2-4x returns in next two years
• Unique approach to collecting tolls on indirect costs for SMEs in Japan sets them apart in the industry

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

• Source: Shared Research based on company data Note: Figures may differ from company materials due to differences in rounding methods.
• Note: Gross profit adjusted for sales returns.
• Note: Net income refers to net income attributable to owners of the parent.

• GiG Works reported FY10/24 revenue of JPY25.4bn, a 4.0% YoY decline, with all profit categories posting losses.
• The Sharing Economy business achieved YoY revenue and profit growth, while other segments experienced declines and operating losses.
• FY10/25 forecasts include JPY24.9bn revenue, JPY180mn operating profit, and a JPY2 per share annual dividend.

• As outlined in its initial forecasts from May 2024, Gurunavi (hereafter, the Company) projected an operating loss of JPY 330 mn and a net loss of JPY 350 mn for the first half of FY2025/3.
• The Company anticipated a recovery in the second half to achieve full-year operating profit of JPY 150 mn and net profit of JPY 110 mn.
• However, following an upward revision announced with Q1 results, the Company reported an operating profit of JPY 278 mn and a net profit of JPY 247 mn for the first half, successfully achieving profitability during the period.