In today’s briefing:
- JIP Tender Offer for Toshiba (6502) Finally Here
- JPX Nikkei 400 Index Rebalance: Some Big Impact Names
- Bank of Kyoto (8369) – Too Far Too Fast
- Toshiba – The Tender Arrives
- Toshiba (6502 JP): Tender Offer Launches, 1Q Results Increase Deal Risks
- TRYT IPO: Down 25% and Upside Is Limited
- TOPIX Inclusions: Who Is Ready (Aug 2023)
- Yakult: At Its Lowest PE Since Before the Global Financial Crisis
- Star Asia Investment Placement – Past Deals Have Held Up, REIT on Track to Meet Its Midterm Targets
- Keyence (6861 JP): Higher S,G&A Takes Down Operating Margin
JIP Tender Offer for Toshiba (6502) Finally Here
- The JIP TOB for Toshiba is here. Finally. It is still too low. Since the announcement, when it was too low, peers are up a lot, and memory looks healthier.
- But it is not clear that activists who pushed this for years want to push any more. There appears to be Toshiba Fatigue, as I warned in March.
- That makes this deal look “safe” but there are technical aspects which make it less “comfortable” than normal large and long-awaited deals.
JPX Nikkei 400 Index Rebalance: Some Big Impact Names
- There are 38 adds/36 deletes for the JPX Nikkei 400 Index to bring the number of index constituents back to 400. There are stocks with multiple days ADV to trade.
- Based on the adds, deletes and capping changes, we estimate one way turnover of 4.35% and a two-way trade of JPY 461bn (US$3.24bn).
- There are a few stocks that will have same way flow from other index trackers within a few weeks of the JPX Nikkei 400 Index rebalance.
Bank of Kyoto (8369) – Too Far Too Fast
- Bank of Kyoto (8369 JP) has been on a relative tear recently. This is a bit surprising. On a static equity-portfolio discount measure, it has outperformed regional banks.
- On a static regional bank PBR basis, it has outperformed its equity portfolio and the discount to the After Tax Equity Portfolio Value (ATEPV) is the smallest in eight years.
- Is there a sea change? There is a possibility, however remote, that domestic investor disappointment rears its voting head. That’s the dream scenario. But I don’t see it coming soon.
Toshiba – The Tender Arrives
- At long last the end to the Toshiba saga appears at hand with JIP’s belated tender offer being formally announced today at the previously quoted price of ¥4,620.
- With a minimum target of 66.7% this does not seem guaranteed to pass but we nevertheless believe that odds are good.
- The question is whether there is any room for a small hike in the price as alluded to by the Chairman.
Toshiba (6502 JP): Tender Offer Launches, 1Q Results Increase Deal Risks
- Japan Industrial Partners (JIP) will launch the Toshiba Corp (6502 JP) tender offer of JPY4,620 per share from 8 August to 20 September.
- The Board has reaffirmed its recommendation to accept the offer. JIP’s inability to raise its bid is used as an excuse to ignore the material peer rerating and unattractive terms.
- The 1Q results undermine the Board’s view of an overstated DCF and show its unwillingness to entertain a potential Kioxia merger as a superior alternative, increasing deal risks.
TRYT IPO: Down 25% and Upside Is Limited
- TRYT’s shares started trading on TSE on 24th July. The IPO was priced at ¥1,200 per share and closed at ¥876 per share at the end of first day trading.
- The company’s shares are currently trading at around ¥900 per share, at a 25% discount to TRYT (9164 JP) ‘s IPO price.
- We recommended staying on the sidelines as the company’s IPO was overvalued and our DCF valuation suggests that shares are fairly valued at the current price.
TOPIX Inclusions: Who Is Ready (Aug 2023)
- Quiddity’s “Who is Ready” series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.
- Plus Alpha Consulting (4071 JP) will be included in TOPIX at the end of August 2023 and so far the stock has performed negatively as expected (see link).
- Our long-term TOPIX pre-event name CELSYS (3663 JP) has seen its share price decline sharply in the last few weeks which raises some important questions.
Yakult: At Its Lowest PE Since Before the Global Financial Crisis
- Yakult Honsha (2267 JP)‘s OP fell short of market expectations by ¥500 million in 1QFY24, leading to a 15% drop in the company’s share price.
- With the post earnings price reaction, Yakult’s FY+2 PE has fallen to its lowest level since before the global financial crisis, currently standing at around 18.7x.
- We think this price reaction is unwarranted as the fundamentals haven’t changed. Thus, creates an opportunity for short-term gains by staying bullish on the stock.
Star Asia Investment Placement – Past Deals Have Held Up, REIT on Track to Meet Its Midterm Targets
- Star Asia Investment (3468 JP) is looking to raise around US$180m in its extended primary follow-on raising. The proceeds will be used to acquire 12 new hotels.
- The deal would be a large deal to digest at 110 days of three month ADV, with the new shares representing around 19% of dilution.
- The REIT has undertaken capital raisings over the past few years to fund its active portfolio management strategy. Thus, we would argue that the deal here is well flagged.
Keyence (6861 JP): Higher S,G&A Takes Down Operating Margin
- 1Q sales growth was strong, but the operating margin was squeezed by the cost of overseas expansion.
- The company’s finances remains very strong, but balance sheet ratios reflect the loss of earnings momentum and the dividend payout remains low.
- Shares sold off on margin contraction, but valuations still high. A quick rebound cannot be taken for granted.
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