Daily Brief Japan: Tomony Holdings, Shinko Electric Industries, TSE Tokyo Price Index TOPIX and more

In today’s briefing:

Tomony Holdings (8600 JP) – Regional Bank NEW SHARE Issue – Not What You Want To See, But Buy Anyway
Merger Arb Mondays (18 Dec) – Shinko Electric, Benefit One, Toyo, CPMC, Vinda, Costa, Volpara
Determining the Cause of the Sluggish ROE Growth Is More Important for Future ROE Increases

Tomony Holdings (8600 JP) – Regional Bank NEW SHARE Issue – Not What You Want To See, But Buy Anyway

On 5 December, Tomony Holdings (8600 JP) – a holding company for two regional banks based in Tokushima Prefecture and Kagawa Prefecture – announced (gasp!) a NEW SHARE OFFERING.
It offered 28mm shares + 4.2mm greenshoe – a share count increase of 20%. At 0.27x book. This IS unusual. Especially when banks are being asked to produce better ROC.
The deal priced at ¥366. We’re there now. Banks have been sold. It is worth looking at where we are and what could happen next. It’s cheap.

TSE data (April 2022-October 2023) shows that the correlation between TOPIX and ROE for prime market listed companies is extremely low, while the correlation between TOPIX and BPS is high.
It may be that a company that can sustainably increase cash flow and build up net assets is more trustworthy than a temporary increase in profits.
It’s presumed that the company increased EPS to the extent that it did not reduce ROE and implemented a certain degree of shareholder return to slow the increase in BPS.

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