Daily Brief Japan: Nitori Holdings, ARTERIA Networks Corp, Toshiba Corp, PHC Holdings, Tokyo Stock Exchange Tokyo Price Index Topix, China SCE and more

• Nikkei has started a market consultation on amendments to the methodology of the Nikkei 225 (NKY INDEX) focusing on the stepwise addition of lower liquidity stocks and on technical listings.
• Stocks that have relatively low ADTV compared to the expected index weight will be added at half the originally planned PAF with the full PAF implemented at the next review.
• If the proposed changes are implemented, some of the potential inclusions in September will be added at half their PAF with the increase to full PAF coming in March 2024.

• Marubeni (8002 JP) and Secom (9735 JP) today announced a Tender Offer to take private Marubeni’s subsidiary ARTERIA Networks Corp (4423 JP) at a 54% premium to the close. 
• Listed 4.5yrs ago, the company hasn’t grown hugely. Revenue growth is slow. EBITDA growth is flat. The takeout is 3.6x book, 7x estimated EBITDA, and about mid-teens PER. Without synergies.
• The price is OK, not great. The Board rejected the final price because it was too low and didn’t include synergies, then accepted because the bidders wouldn’t go further? Hmmm…

• ARTERIA Networks Corp (4423 JP) has recommended Marubeni Corp (8002 JP) and Secom Co Ltd (9735 JP)’s tender offer of JPY1,980 per share, a 54.1% premium to the undisturbed price.
• 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 16.61% ownership ratio.
• The offer is conditional on Chinese and Japanese regulatory approvals. The minimum acceptance condition requires a 33% minority acceptance rate. This is doable as the tender price is attractive. 

• We believe Toshiba guidance could be meaningfully lower than consensus estimates project. 
• While we expect some conservatism across industrial segments this could easily be offset by prolonged stagnation on the tech side. 
• Given concerning signs for NAND we believe weak guidance could shake confidence in deal funding.

• PHC Holdings (6523 JP) announced FY23 result, which is in-line with previously announced downward revised guidance. For FY23, revenue increased 5% to ¥356B, driven by diagnostics and life sciences business.
• Despite an impairment loss of ¥8.7B in Epredia, operating profit grew 145% to ¥20B. FY23 net loss narrowed to ¥3.2B from ¥8.5B in FY22.
• PHC has initiated FY24 guidance and guided for FY24 revenue of ¥355.5B (down 0.3% YoY). The company is expected to turn profitable in FY24, with net profit of ¥15.6B.

• Stock price increases only at the “TSE’s request” are anticipatory, and conversely, the gap with JPX Prime 150 Index components, which attract the attention of overseas investors, may widen.
• “TSE’s Request” effect is that TSE has changed the game by making it easier to compare managers of different companies according to P/B, thereby increasing managers’ awareness of stock prices.
• Just as all companies worked to “conserve energy” and become more competitive during the oil crisis, many companies’ stock valuations will rise in environment where managers must change their mindset.

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.

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