In today’s briefing:
- JIC Deal For Shinko Electric Is LIGHT, and There’s Room To Complain, But Will Trade Wide
- Recruit (6098 JP) Buyback – It’s Big But Not THAT Big; Value Act Effect Vs Corp Selldown Vs Multiple
- Toyota Cross-Shareholding – To Say a Whole Lot Is Left Would Be a US$26bn Understatement
- Infroneer (5076) | Valuation Turbulence
- It’s Unreasonable to Hope for Higher Stock Prices While Being Reluctant to Disclose Information
- Geo Holdings: Plenty of Money in Old Rope
- 2Q Follow-Up – Takachiho Koheki (2676 JP)
- Duskin (4665 JP) – Proactive Changes to Result in Higher Performance
JIC Deal For Shinko Electric Is LIGHT, and There’s Room To Complain, But Will Trade Wide
- 29 minutes after I published a long, musing piece on the possibilities of structure and announcement later this week, JIC and Shinko Electric announced 5 minutes before midnight.
- A warning for the future: The Nikkei and every other media outlet got the number wrong. It is NOT a total acquisition cost of “around ¥800bn”. It is under ¥700bn.
- It IS a split deal. And if JIC won with that price, it tells you something about the state of the market and future deals in the space.
Recruit (6098 JP) Buyback – It’s Big But Not THAT Big; Value Act Effect Vs Corp Selldown Vs Multiple
- Last month, Reuters reported that activist-ish investor Value Act Capital Management had bought a stake in Recruit Holdings (6098 JP) and separately in Expedia Group, Inc. (EXPE US)).
- It was “revealed” in a letter to its clients. And there were reasons stated why Value Act thought Recruit was worth a lot more than it was trading for.
- Today, Recruit announced an on-market buyback for ¥200bn. That’s nice. But it is not enormous, and it may signal other info, and it is worth understanding details and context.
Toyota Cross-Shareholding – To Say a Whole Lot Is Left Would Be a US$26bn Understatement
- With Toyota (7203 JP) having sold some of its stake in Denso, KDDI and Harmonic Drive this year, it has firmly set the ball rolling for unwinding some of its cross-shareholding.
- Toyota has a shareholding in around 60 listed companies, with its combined disposable stake worth over US$26bn.
- In this note, we take a look at its stakes in various companies to see which ones could possibly be candidates for further selldowns.
Infroneer (5076) | Valuation Turbulence
- JWD Acquisition: Infroneer acquires Japan Wind Development for ¥200 billion, sparking a ¥75 billion market cap dip and concerns about potential overpayment.
- Valuation Analysis: Using DCF and comparable transaction values, estimates suggest JWD’s equity value may be far lower than the agreed-upon ¥200 billion.
- Need for Transparency: Infroneer’s claim of fair value requires scrutiny. Market suggests an estimated fair value of ¥125 billion, emphasizing the need for detailed information on the acquisition.
It’s Unreasonable to Hope for Higher Stock Prices While Being Reluctant to Disclose Information
- A company that does’t include a cash flow statement in its 1Q and 3Q financial summaries, which will now be mandatory, is a company that is reluctant to disclose information.
- Management groups have called for making quarterly disclosure voluntary. This time, a hand has been dealt with a compromise proposal to unify quarterly reports and financial statements in securities reports.
- While the risk of dropping quarterly disclosure in the near future is small, the major problem is that some managers are still reluctant to disclose information.
Geo Holdings: Plenty of Money in Old Rope
- Consumption of used products is rising fast as exemplified by the rise of 2nd Street.
- Operated by Geo Holdings (2681 JP), once just a DVD rental business, it is now Japan’s largest used goods retailer.
- Sales are booming in a market increasingly focused on thrift and re-use, allowing 2nd Street to even take on the might of Mercari.
2Q Follow-Up – Takachiho Koheki (2676 JP)
- Takachiho Koheki is a trading company highly specialized in electronics technology, introducing the world’s cutting-edge electronics products to Japan ahead of competitors, positioned as a specialized technical group with engineering employees accounting for 42.2% of its workforce.
- The company’s electronics products and IT solution services help solve modern social issues of great concern such as crime control and prevention, labor shortages and labor savings, and climate change and disasters.
- In 1H FY24/3, the company reported consolidated net sales of ¥12,729 mn (+14.5% YoY), operating profit of ¥713 mn (+22.2% YoY), ordinary profit of ¥1,057 mn (+18.2% YoY), and profit attributable to owners of parent (hereinafter, net profit) of ¥717 mn (+9.2% YoY).
Duskin (4665 JP) – Proactive Changes to Result in Higher Performance
- Positive dynamic changes being executed – Q1-2 FY3/2024 results were in line with upwardly revised company guidance and indicated that the company is making steadfast progress in its transformation initiatives via positive capital allocation.
- Investment into Smart Factory via RFID technology is being conducted as planned to drive future cost efficiencies, and the company raised its FY dividend forecast to ¥98 per share (initially forecast at ¥78) highlighting the company’s positive stance on returning cash to shareholders.
- The Food Group business continues to see robust growth at ‘Mister Donut’ restaurant chain, driven by increases in footfall, average spending, and store sales YoY.
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