In today’s briefing:
- Toshiba (6502) – Funding Definitely Probably Now Secured – Next Steps and Risks
- Nintendo (7974) | Game Over for Switch
- Carlyle 86% Premium ¥4460 TOB on Iwasaki Elec – Probably Light, and Interesting Shareholder Register
- Nissan’s Renault Led Selldown Very Early Look – US$4.3bn Prolonged Overhang or Lack Thereof
- Softbank Group (Neutral) – Q3 22 Results Reaction: Defensive Stance Intact as VF Losses Continue
- Toshiba – Good News?
- Toyo Construction (1890 JP): YFO and the Board Trading Half-Truths
- Z Holdings (4689.JP) Upgrade to BUY: Leaner Business Lines with PayPay Drives Growth
- Japanese Companies with Low Debt Should Evaluate Profitability in Terms of ROA Rather than ROE
Toshiba (6502) – Funding Definitely Probably Now Secured – Next Steps and Risks
- On 31 January, the expected “deadline” for a bank loan agreement with the JIP Consortium bidding for Toshiba, we got news that commitment confirmation would be extended to 3 February.
- Every other time we got a deadline extension, we got an article. On 3-6 Feb, we got no article, suggesting we were close. Today, a Bloomberg article says terms agreed.
- That gets us over the biggest hump. Now we have to look at possible next steps and timing.
Nintendo (7974) | Game Over for Switch
- Nintendo reported operating profit of 190b yen (-8% YoY), falling far short of Street expectations
- The Nintendo Switch is now a six-year old console and demand is exhausted. A normalization of chip/supply chain issues benefits the newer PS5
- Our thesis is that the hardware cycle has peaked and that the share price will head lower in tandem with the dwindling top line
Carlyle 86% Premium ¥4460 TOB on Iwasaki Elec – Probably Light, and Interesting Shareholder Register
- Carlyle has agreed to do an MBO on Iwasaki Electric (6924 JP) where the existing CEO who is 65yrs old will take a 0.5% stake.
- As a purveyor of specialist industrial lighting, including transition to LED lighting for public space use, the company’s place in the ecosystem is not undesirable. But it isn’t hugely profitable.
- This smallcap takeout at an 86% premium is probably still too light. And the Shareholder Structure is interesting.
Nissan’s Renault Led Selldown Very Early Look – US$4.3bn Prolonged Overhang or Lack Thereof
- With Nissan (7201 JP) and Renault coming to a new arrangement regarding their working relationship, Renault will be left with a US$4.3bn Nissan stake that it will look to sell eventually.
- The selldown will probably take a long while to materialize.
- In this note, we talk about the announcement and take a very early look at the possible selldown.
Softbank Group (Neutral) – Q3 22 Results Reaction: Defensive Stance Intact as VF Losses Continue
- Management pushed a conservative / defensive line for Q3 as markets remain uncertain and investment losses continue
- Revenue growth at ARM was better than expected as licensing revenues rebounded strongly. Guidance for the timing of an IPO (sometime in 2023) remains unchanged
- This was a slightly disappointing quarter but hopes were not high heading into the print with the discount hovering around 35%
Toshiba – Good News?
- So JIP appears to have finally secured funding for its tortured Toshiba bid.
- The market is reacting positively and we think this is reasonable but the real question is whether Toshiba management will be amenable to the new terms of JIP’s deal.
- In our view, there are certain quirks regarding recent news flow which point to a potential answer to that question.
Toyo Construction (1890 JP): YFO and the Board Trading Half-Truths
- YFO’s latest press release outlines the key objectives of a revamped Toyo Construction (1890 JP) Board, should its recommended directors get elected at the June AGM.
- YFO’s strategy is to revamp the Board, which should pave the way for its tender offer. YFO’s standstill agreement expires on 24 May and the tender offer starts in late-September.
- The Board could allege that YFO has breached its NDA agreement and re-introduce a poison pill. The Board could look to garner enough support to block YFO’s nominations.
Z Holdings (4689.JP) Upgrade to BUY: Leaner Business Lines with PayPay Drives Growth
- ZHD F3Q22 (C4Q22) net revenue slightly missed our est. and cons. by (2%) and (1%). Adjusted EBITDA margin was in line with our est. excluding impact from PayPay consolidation.
- PayPay will continue to be the growth driver for ZHD with increase in unit spending supported by premium credit card offering and deepening integration with group’s other services.
- We upgrade ZHD to BUY and raise our TP to JPY 435 to reflect beat in profitability and upsides in PayPay
Japanese Companies with Low Debt Should Evaluate Profitability in Terms of ROA Rather than ROE
- While OP margin remains flat, ROE increased moderately due to higher in total-asset-turnover. Going forward, the drivers of ROE growth are likely to continue through reductions in cash and cross-shareholdings.
- It would be more likely to find it in a company that already has high operating profit margin and where ROE can be improved by improving the total asset turnover.
- Based on my analysis so far, I assume that companies that raised their stock price valuations did so by clarifying their cash allocation policies and engaging in communication with investors.
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