In today’s briefing:
- Shinko Electric (6967) Takeover: Changing Break/Gap Risk as Comps Gain
- The Hunt for the Japanese Laggards, Here Are 47 Attractive Companies
- Merger Arb Mondays (22 Jan) – JSR, Benefit One, T&K Toka, Guppy’s, Genetron, Weiqiao, Probiotec
- ROE and Valuations of Japanese Stocks Will Improve Through Dissolution of Parent-Subsidiary Listings
Shinko Electric (6967) Takeover: Changing Break/Gap Risk as Comps Gain
- The JIC Deal for Shinko Electric Industries (6967 JP) started trading wide when announced five weeks ago. It is still at 9% for perhaps 9 months.
- There is FUD. There are Flows. Just like JSR (4185). Some of that FUD can be explained by “gap risk” on deal break…. or can it? We look at risks.
- 5 weeks ago, there was more positioning risk than fundamental risk. But now main comp Ibiden has outperformed Shinko by 17%. Gap risk is fundamentally lower now. Bump risk exists.
The Hunt for the Japanese Laggards, Here Are 47 Attractive Companies
- Tokyo Stock Exchange (TSE) has published the list of companies that are conscious of stock capital and share price; this will be a recurring monthly feat
- The initial compliance rate is encouraging and should continue to grow as peer pressure is relentless and doing nothing is not an option. The shake-up is happening
- We narrow down a list of companies that are the most compelling laggard opportunities based on their low price to book ratio (PBR) and strong balance sheet
Merger Arb Mondays (22 Jan) – JSR, Benefit One, T&K Toka, Guppy’s, Genetron, Weiqiao, Probiotec
- We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
- Highest spreads – GUPPY’s Inc (5127 JP), Hollysys Automation Technologies (HOLI US), Shinko Electric Industries (6967 JP), Probiotec Ltd (PBP AU), Irc Ltd (1029 HK), Genetron Holdings Ltd (GTH US).
- Lowest spreads – T&K Toka Co Ltd (4636 JP), Tietto Minerals Ltd (TIE AU), Benesse Holdings (9783 JP), Benefit One Inc (2412 JP), Orecorp Ltd (ORR AU).
ROE and Valuations of Japanese Stocks Will Improve Through Dissolution of Parent-Subsidiary Listings
- It’s no surprise that some companies consider the dissolution of parent-subsidiary listings as a swift and effective measure to raise ROE. However, not every listed subsidiary will be TOB.
- TOB of a high-profitability subsidiary can have significant impact on both the denominator and numerator of the parent company’s ROE because it uses more cash and will improve profit margins.
- Even if the “significance of parent-subsidiary listings” is disclosed, few investors believe that the listed subsidiary’s independence is fully ensured, and the dissolution of parent-subsidiary listings will eventually follow.
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