In today’s briefing:
- Sumitomo Elec Buys Out Sub Techno Associé) At ¥1,695/Share – Insulting Explanation. Deserves More.
- Sumitomo Electric Buys Out Sub Nissin Electric (6641) At ¥1,700/Share – ATH But Still Too Low
- Keisei Electric: Needs Activists to Push the Market
- Nissin Electric (6641 JP): JPY1,700 Tender Offer from Sumitomo Electric
- SONY (6758) | Re-Acceleration of Growth in Games
- Techno Associe (8249 JP): JPY1,695 Tender Offer from Sumitomo Electric
- Kyocera (6971 JP): Massive Downward Revision
- Z Holdings (Neutral) – Q3 22 Results Reaction: Lofty EBITDA Targets Cut on Erosion in Core Business
- Takeda: Top Line Beats Consensus, Steady Pipeline Progress and Further Upside
- KDDI (Buy) – Q3 22 Results Reaction: Super Mobile but Full-Year Targets Look Challenging
Sumitomo Elec Buys Out Sub Techno Associé) At ¥1,695/Share – Insulting Explanation. Deserves More.
- Sumitomo Electric Industries (5802 JP) is taking over to subs through tender offers. Both are light. Both this one for Techno Associe (8249 JP) and the one for Nissin Electric.
- Both deals are light -slightly offensive, but in different ways. The Board decisions are more offensive than the actual prices, but it’s Sumi Elec buying, so those are offensive too.
- There’s a history here. Sumi Elec went to 51% at an offensively low price (EV/EBITDA below zero) in 2019. But this is probably a done deal anyway.
Sumitomo Electric Buys Out Sub Nissin Electric (6641) At ¥1,700/Share – ATH But Still Too Low
- Sumitomo Electric Industries (5802 JP) has announced a takeover of two of its subsidiaries today. The larger one is Nissin Electric (6641 JP).
- This deal, done for governance purposes, hits an all-time high price. But, like others, it ignores synergies in pricing, has an inadequate premium, and process is just bad.
- But given the shareholder structure, this is highly likely to sail through un-molested.
Keisei Electric: Needs Activists to Push the Market
- We think there’s something fundamentally wrong with Keisei Electric Railway Co (9009 JP)’s current valuation.
- Its core business with an estimated fair value of ¥720bn, currently has an implied valuation of negative ¥942bn (stub value).
- If investors can convince the management to dispose its stake in Oriental Land (4661 JP), we think there’s more than a 200% upside to Keisei Electric’s valuation.
Nissin Electric (6641 JP): JPY1,700 Tender Offer from Sumitomo Electric
- Nissin Electric (6641 JP) has recommended Sumitomo Electric Industries (5802 JP)’s tender offer of JPY1,700 per share, an 22.7% premium to the undisturbed price (2 February).
- The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the offer has been set to meet the 66.67% ownership ratio.
- The tender offer is attractive in comparison to peer multiples and historical price ranges. Excluding the offeror, there are no substantial shareholders. This suggests a done deal.
SONY (6758) | Re-Acceleration of Growth in Games
- Sony’s Q3 operating profit fell 8% YoY to Y428b beating consensus estimates by around 15%
- The PS5 has now sold over 32m units, finally shaking off supply constraints. Will VR2 surprise?
- We remain bullish on the stock at 15x earnings. Sony is a core play on content creation and digitization.
Techno Associe (8249 JP): JPY1,695 Tender Offer from Sumitomo Electric
- Techno Associe (8249 JP) has recommended Sumitomo Electric Industries (5802 JP)’s tender offer of JPY1,695 per share, an 36.9% premium to the undisturbed price (2 February).
- The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the offer has been set to meet the 66.67% ownership ratio.
- The tender offer is attractive and represents an all-time share price high. This suggests a done deal. The tender offer period is from 3 February to 22 March.
Kyocera (6971 JP): Massive Downward Revision
- Kyocera cut FY Mar-23 operating profit guidance by more than 30% while leaving sales guidance unchanged. Draw your own conclusions about the reliability of company forecasts.
- Sales began to decline in 3Q and the rate of decline is likely to increase in 4Q. There is a large inventory overhang.
- The shares dropped 3% today. Wait for capitulation as the reality of recession sinks in.
Z Holdings (Neutral) – Q3 22 Results Reaction: Lofty EBITDA Targets Cut on Erosion in Core Business
- Management has cut its FY23 EBITDA target from its long-term goal of ¥390bn to c. ¥363bn as its core ad and eCommerce performance gets weaker
- Advertising revenue fell 1% YoY whilst eCommerce volumes (GTV) on the core third-party marketplace Yahoo!Shopping were also down significantly
- The outlook for FY23 is further blurred by management changes to address business challenges and deeper LINE/Yahoo integration. We are lowering our target price to ¥425
Takeda: Top Line Beats Consensus, Steady Pipeline Progress and Further Upside
- Takeda Pharmaceutical (4502 JP) reported 3QFY03/2023 results today. Reported revenue increased 11.2% YoY to JPY1,096.6bn (vs consensus JPY996bn) while OP increased 26.2% YoY to JPY147bn (vs consensus JPY180.1).
- The drop in OP vs consensus was mainly due to the depreciation of the Yen, nevertheless, OPM improved 30bps to 13.4% during the quarter.
- Takeda has not revised full-year forecast, however, we think the company will easily beat its own guidance as it pushes forward with its development pipeline further aided by M&A.
KDDI (Buy) – Q3 22 Results Reaction: Super Mobile but Full-Year Targets Look Challenging
- Core mobile revenue fell 4% but that is an improvement from 7-8% declines over the last few quarters and including value-added sales (VAS), retail mobile spend is up
- Competitive challenges remain with elevated churn and visible declines in roaming revenue from Rakuten (although sequential change has been modest)
- KDDI has kept guidance for FY22 operating income growth unchanged despite unanticipated expenses for rising fuel costs and the July network failure
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