In today’s briefing:
- P.S.Mitsubishi Contruction (1871 JP) – Pro-Ration Expectations Update
- Nikkei 225 Index Rebalance Preview (Mar 2024): Update on Ranking, Capping, Funding & Other Changes
- Medikit (7749 JP) Below Market Tender Offer Buyback
- EQD | Nikkei 225 MONTHLY Analysis
- Still Many “Parent-Subsidiary Listings” Keep to Provide Investment Opportunities for Inefficiencies
P.S.Mitsubishi Contruction (1871 JP) – Pro-Ration Expectations Update
- The Partial Offer launched last month by Taisei Corp (1801 JP) to take a 50.2% stake in Ps Mitsubishi Construction (1871 JP) ends at the beginning of next week.
- This hasn’t been a very “exciting” trade. Small, boring sector. One big company selling to another. But it has traded cheap. However, volume has been high.
- Volume has been so high it causes me to revisit my pro-ration expectations, so I have updated estimates and tables below.
Nikkei 225 Index Rebalance Preview (Mar 2024): Update on Ranking, Capping, Funding & Other Changes
- The review period for the Nikkei 225 (NKY INDEX) March rebalance ends end January. There could be three changes at the rebalance with sector balance in focus.
- Depending on the changes, passives trackers will need to buy 2.4-22.5x ADV (10-24% of real float) on the inclusions and sell between 3.5-42.5x ADV on the deletions.
- Fast Retailing (9983 JP) capping, Nitori Holdings (9843 JP) increase in PAF, a big funding trade, and potentially new stocks being added in two-steps.
Medikit (7749 JP) Below Market Tender Offer Buyback
- Japanese medical products maker Medikit Co Ltd (7749 JP) Tuesday announced a buyback of ~12% of its shares from the founder’s company.
- The stock is extraordinarily illiquid. 12mo ADV is <US$40k/day. But Medikit runs 40% gross margins, 20% EBIT margins, and trades at an EV/revenue ratio of ~0.8x. It’s cash-rich, and cheap.
- But it’s an interesting situation. The buyback (and its reason) combined with the shareholder structure allow me to idly speculate this is an MBO candidate.
EQD | Nikkei 225 MONTHLY Analysis
- After a strong rally in November, the Nikkei is currently in a temporary corrective phase, reaching between the Q1 and Q2 support levels of the MRM LONG chart.
- There are 2 possible paths from here: 1) a modest pullback, followed by a rally into the end of December, 2) a dive to <= 31672, and December closes down.
- Both these scenarios offer very good seasonal LONG odds for January closing up (based on our SRM model), so we suggest going LONG the Nikkei 225 on the pullback.
Still Many “Parent-Subsidiary Listings” Keep to Provide Investment Opportunities for Inefficiencies
- Maintaining a parent-subsidiary listing that fails to ensure the interests of minority shareholders indicates that the parent company is willing to tolerate dysfunctional corporate governance of the subsidiary.
- Parent-Subsidiary listings drain the profits of profitable subsidiaries from the parent company, reducing profits and corporate value. The solution to this problem is to eliminate parent-subsidiary listings.
- The elimination of parent-subsidiary listings through TOB will reduce market inefficiencies and improve the quality of TSE-listed companies.
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