In today’s briefing:
- Sep24 Nikkei 225 Review Results: A Slightly Baffling 2 IN, 2 OUT
- Nikkei 225 Index Rebalance: NRI, Ryohin Keikaku IN; Nippon Paper, DIC OUT; Fast Retailing Capped
- Fuji Soft (9749 JP): KKR’s Cop-Out as It Launches at Unchanged Terms, Next Move Bain
- For Long-Term Investors, Seven & I Is the Better Bet
- Sony’s (6758) Bold Move into Web3: What Is Soneium?
- Mar25 Nikkei 225 Rebal Predictions: Likely 2 IN, 2 OUT, Again; Minimal Surprise Factor
- For the Time Being, Stronger Shareholder Returns Are an Incentive for the Stock Price to Rise
- Takamiya (2445 JP) – Full Report
- Migalo Holdings (5535 Jp) – 1Q Follow-Up
Sep24 Nikkei 225 Review Results: A Slightly Baffling 2 IN, 2 OUT
- Today, the Nikkei Index Committee decided to delete Nippon Paper (3863) for low liquidity, and DIC (4631) for sector over-representation, and added Nomura Research Institute (4307) and Ryohin Keikaku (7453).
- The only auto-delete was Nippon Paper. The DIC delete was “discretionary.” But they could have done a third. Why did they not do a third change? I do not know.
- The whole shebang should be ¥350-375bn a side. At current price, Fast Retailing is set for another capping (selling) event in March 2025. And there is one shoo-in then too.
Nikkei 225 Index Rebalance: NRI, Ryohin Keikaku IN; Nippon Paper, DIC OUT; Fast Retailing Capped
- Nomura Research Institute (4307 JP) and Ryohin Keikaku (7453 JP) will replace Nippon Paper Industries Co L (3863 JP) and Dic Corp (4631 JP) in the Nikkei 225 (NKY INDEX).
- Fast Retailing (9983 JP)‘s CPAF will drop from 3 to 2.7 and there will be further selling in March 2025 as the CPAF drops to 2.4 (or possibly even 2.1!)
- Passives will need to buy 7-15x ADV (13-14% of real float) in the adds and sell 2.7-6.5x ADV in the deletes. There is a big reverse funding trade too.
Fuji Soft (9749 JP): KKR’s Cop-Out as It Launches at Unchanged Terms, Next Move Bain
- In response to the potential Bain competing offer for Fuji Soft Inc (9749 JP), KKR has waived the precondition and launched its offer at unchanged JPY8,800 per share.
- Bain’s due diligence ends on 20 September, and it aims to submit a binding proposal in October. This timeline will thwart KKR’s offer, which closes on 21 October.
- KKR’s offer launch at unchanged terms is delaying the inevitable and will have to bump to succeed. A potential bidding war is likely to push the offer price to JPY10,500.
For Long-Term Investors, Seven & I Is the Better Bet
- The Couche-Tard “friendly bid” raises more questions than it answers: Is it real? What does CT really want? Can it afford it? Will the Japanese government let it through?
- We remain sceptical about a bid – if it happens – succeeding. Either way, Seven & Eleven Japan looks to be the much better retailer.
- It has been selling 25-40% more than competitors in the world’s toughest CVS market and looks set to extract more value in Japan/overseas than anyone else could so why sell?
Sony’s (6758) Bold Move into Web3: What Is Soneium?
- Sony launches Soneium, a blockchain platform developed with Startale Labs, as a Layer 2 Ethereum solution to enhance transaction speed and scalability.
- Soneium aims to bridge Web2 and Web3, leveraging Sony’s vast intellectual property in entertainment and technology for broad consumer adoption.
- Backed by Sony’s resources, Soneium focuses on user-friendly blockchain technology, offering financial and technical support through its Soneium Spark incubation program.
Mar25 Nikkei 225 Rebal Predictions: Likely 2 IN, 2 OUT, Again; Minimal Surprise Factor
- The Sep24 Nikkei 225 Review Results are out, discussed in Sep24 Nikkei 225 Review Results: A Slightly Baffling 2 IN, 2 OUT.
- That lets us move to Mar25 Nikkei 225 Rebal predictions. For the moment, I see 2 IN and 2 OUT, again.
- And at the moment, another Fast Retailing capping exercise looks likely, for roughly US$3bn a side to trade.
For the Time Being, Stronger Shareholder Returns Are an Incentive for the Stock Price to Rise
- While cash flow has improved, companies haven’t found promising investment opportunities. Continuation of a rigid dividend policy is another factor that further increases cash on hand.
- Given that the already high level of cash on hand is expected to build further in the current fiscal year, there is room to increase shareholder returns considerably.
- For many companies, it is not easy to find new sources of investment other than through M&A, and shareholder returns are the most effective way to reduce cash.
Takamiya (2445 JP) – Full Report
- The Company specializes in temporary construction equipment and offers a one-stop service from development and manufacturing to sales, rentals, design and installation, as well as management and logistics.
- Its flagship product, the next-generation scaffolding “Iq System,” was launched in 2014 and excels in safety and ease of use.
- The Company is transitioning its business to a platform-based model aimed at generating stable income with reduced rental asset intensity.
Migalo Holdings (5535 Jp) – 1Q Follow-Up
- On August 7, 2024, Migalo Holdings Inc. (hereafter, the Company) announced its 1Q FY2025/3 earnings results.
- Sales declined 10.6% YoY to ¥13,671 mn, and operating profit fell 56.9% YoY to ¥792 mn.
- The declines in both sales and profit were anticipated, primarily due to the concentration of new property deliveries in the DX Real Estate business during the same period last year.
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