In today’s briefing:
- Senko Group (9069 JP) Offering – Banks and Insurers Unwinding Cross-Holdings in Offering
- Outsourcing (2427 JP) – Earnings Out, With a Bigger Impairment, But Not Clearly A MAC
- Heiwado (8276 JP) – Banks and Insurers Unwinding Cross-Holdings In Offering
- Outsourcing (2427 JP): The Weak 4Q Unlikely to Deter Bain
- Nintendo (7974) | Delayed…Or Just Fashionably Late
- Trial Holdings Pre-IPO – Refiling Updates – Margin Uptick, More Golf Courses
- Governance Improvement in 2023 Was Modest but Saved by a Rise in % Woman Board Members
- Mercari’s Credit Card Boosts Sales, New Gig Worker Service to Add New Revenue Stream
Senko Group (9069 JP) Offering – Banks and Insurers Unwinding Cross-Holdings in Offering
- SENKO Group Holdings Co., Ltd. (9069 JP) today announced large financial institutional cross-holders would sell shares in a Secondary Offering. There’s a buyback on the back end.
- Cross-Holding unwinding is the subject of the moment. It will continue to be so. It will involve selldowns, and buybacks. Study the model of what companies must do what.
- In this case, Senko has a LOT of cross-holders and minimal excess cash. So investors buy more shares. But there is a buyback and index demand to come.
Outsourcing (2427 JP) – Earnings Out, With a Bigger Impairment, But Not Clearly A MAC
- Outsourcing Inc (2427 JP) delayed its earnings from 14 February to 19 February on tardiness in calculating impairment losses. That caused a short sharp shock in share price.
- An article came out suggesting it was a small number, and domestic biz EAS-related. Results today do not suggest EAS-related, and half is overseas. But no suggestion of precondition breach.
- For that, I think this probably goes through, and the EC FSR review period should end on 20 Feb so a deal announcement by Friday is eminently possible.
Heiwado (8276 JP) – Banks and Insurers Unwinding Cross-Holdings In Offering
- Heiwado Co Ltd (8276 JP) today announced a Secondary Offering sell-down by cross-holders, combined with a buyback post-offering to mitigate some of the effects of overhang.
- Banks and insurers are selling, and that will leave the stock with a lot of cross-holders left, but investors should look at the model given he zeitgeist.
- Companies with lots of cross-holders have to be “fair” to them. Those without copious cash have to spread it around so this transaction model looks likely to be continued.
Outsourcing (2427 JP): The Weak 4Q Unlikely to Deter Bain
- Outsourcing Inc (2427 JP) has disclosed a weak 4Q materially below guidance due to cost overruns and JPY6,875 million in impairments. The results did not provide an update on Bain’s tender.
- The weak 4Q has raised concerns that Bain would reconsider terms. Our take is that the results will not warrant a change in the DCF valuation or breach a pre-condition.
- Bain is likely to consider the results a reflection of near-term industry weakness rather than company-specific issues. The annualised spread for a March-end completion is 9.8%.
Nintendo (7974) | Delayed…Or Just Fashionably Late
- Nintendo’s share price fell ~6% on rumours of Switch 2 delay, wiping around $4 billion of the market cap
- We do not believe that a one quarter delay will have any impact on the console’s long-term sell-through or the stock’s valuation
- With Sony’s PS5 faltering, Nintendo is launching at an opportune time. We turn bullish on the stock with ~25% upside from here
Trial Holdings Pre-IPO – Refiling Updates – Margin Uptick, More Golf Courses
- Trial Holdings (5882 JP) (TH) is now looking to raise around US$234m in its Japan IPO, after having canceled its prior listing attempt last year.
- TH operates a network of retail stores that offer one-stop shopping under its everyday low price model, across a variety of daily necessities, food items and other products.
- We have looked at the past performance in our previous notes. In this note, we talk about the updates from its recent filings.
Governance Improvement in 2023 Was Modest but Saved by a Rise in % Woman Board Members
- There was modest improvements in corporate governance in 2023, without any Code revisions. About two thirds of companies showed little improvement in their corporate governance practices over the past year.
- However, the increase in % Woman Board Members, a touchstone for measuring the improvement attitude of some companies that have shown improvement, gives us hope for the future.
- Companies with Metrical CG scores rising below 2.5 points and those with declines have challenges with their use of cash, along with their stock repurchase and dividend policies.
Mercari’s Credit Card Boosts Sales, New Gig Worker Service to Add New Revenue Stream
- Mercard, the credit card launched by Mercari in late 2022, is a success, helping the the CtoC platform grow its user base and help add to Mercari’s financial services business.
- The rate of growth in online flea markets has slowed and competition has increased so relying on the CtoC platform alone won’t deliver sufficient growth.
- Mercari will introduce a new gig-work service this Spring to further differentiate its business from the likes of Rakuma and Yahoo Flea Market.
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