In today’s briefing:
- Toshiba – Kioxia Could Be A Break Risk
- Toshiba (6502 JP): Tender Offer Risk/Reward
- JAPAN GOVERNANCE CHANGES III: New Return Policy at Seikitokyu (1898) – To Be Copied Elsewhere?
- BIGLY Marui Group (8252 JP) Buyback, Backed by Big Dividend Boost
- KLINE (9107) – Salutary Earnings, Decent Div, Strong Forecast, and Flow To Come
- Seven & I: Investor Activism Update
- Fast Retailing: Great Fundamentals for Uniqlo, Shame About the Share Price
- Recruit Holdings: 4QFY2023 Earnings Preview
- New Index Distracts from Prime Market Issues While Providing Long/Short Opportunities for Investors
Toshiba – Kioxia Could Be A Break Risk
- We believe Kioxia’s results present a significant risk to financing for JIP’s Toshiba bid.
- Recent commentary from companies increasingly points to the potential for an L-shaped recovery rather than a U-shaped one.
- In addition, if conditions remain as challenging as they have been or worsen it is not inconceivable for Kioxia to require more capital.
Toshiba (6502 JP): Tender Offer Risk/Reward
- Toshiba Corp (6502 JP) reports FY2022 results on 12 May. Since the announcement of Japan Industrial Partners (JIP)’s pre-conditional tender offer of JPY4,620 per share, there have been no progress updates.
- The spread to the offer is currently 4.2%, suggesting a reasonable probability of success. However, the offer’s success ultimately depends on shareholder backing, particularly from the activists on the register.
- Shareholder support continues to pose a considerable risk as the peers have re-rated, the offer’s price ratio remains unattractive and the declining premium of the offer’s implied multiple vs peers.
JAPAN GOVERNANCE CHANGES III: New Return Policy at Seikitokyu (1898) – To Be Copied Elsewhere?
- Activist Strategic Capital has made shareholder noise at civil engineer-road infra company Seikitokyu Kogyo (1898 JP) for years. Two years ago I wrote about Seikitokyu as “A REALLY Cheap Company.”
- When I wrote, it was ¥885/share. 23 months later it was ¥824/share having paid ¥60/share over two years. Despite having bought back 10% of shares outstanding in the interim.
- Today they announced a radical new Shareholder Return Policy. It is worth reading in detail. The insight is labelled BEARISH for a specific reason. That’s a detail too.
BIGLY Marui Group (8252 JP) Buyback, Backed by Big Dividend Boost
- Last year, fintech-wannabe Marui Group (8252 JP) announced a large buyback as part of its ¥100bn distribution to shareholders in its MTMP, then increased the size
- They repurchased ¥26bn of shares. Today they announced the return of ¥50bn this year including a ¥40bn buyback. And having arrived at their optimal balance sheet structure, a new policy.
- That’s 10% of market cap and 11.6% of shares. And again a delayed start. And as always, shareholder structure matters. In this case a lot.
KLINE (9107) – Salutary Earnings, Decent Div, Strong Forecast, and Flow To Come
- Kawasaki Kisen Kaisha (9107 JP) has been a high conviction long since early November when it reported Q2 earnings and a buyback. Buyback executed, they upped the dividend.
- At Q3, earnings were downgraded from ¥700bn to ¥650bn on container biz weakness. FY22 ended at ¥695bn. March 2024 had been forecast at ¥106bn, the forecast is now ¥120bn.
- The dividend has been “lowered” to ¥200/share, which is higher than expected. That’s for this year.
Seven & I: Investor Activism Update
- The relationship between Value Act and Seven & I Holdings (3382 JP) has become toxic due to Value Act’s opportunistic behaviour after the passing of the Seven & I founder.
- Seven & I and Value Act have been exchanging letters more frequently, with recent ones taking on an angry tone, especially from Seven & I’s side.
- Value Act’s attempt to block the reappointment of experienced directors could cause long-term value disruption, especially if their goal is to pressure a spinoff of the convenience store business.
Fast Retailing: Great Fundamentals for Uniqlo, Shame About the Share Price
- Uniqlo is such a mainstay of Japanese retailing, and indeed life, that its dominance seems inevitable and unchanging.
- Yet it has morphed from a mess of poorly judged acquisitions and failed overseas experiments into Japan’s biggest retail export – and still manages to pull off 20% growth.
- Its latest target of ¥10 trillion in 10 years is far-fetched but its history of persistent determination suggests continued expansion is a certainty.
Recruit Holdings: 4QFY2023 Earnings Preview
- Recruit Holdings (6098 JP) will report FQ4 results on 15th May. Consensus expectations are ¥844.4bn and ¥92.5bn in revenue and EBITDA respectively.
- The company revised its previous guidance in February and expects revenues and OP of ¥823bn and ¥89.2bn respectively for 4QFY03/2023.
- Our revenue forecast for 4QFY03/2023 is in line with Recruit’s guidance, while we expect the company’s adjusted EBITDA to be slightly higher than the guidance.
New Index Distracts from Prime Market Issues While Providing Long/Short Opportunities for Investors
- TSE may be trying to dodge criticism that prime market, which includes many illiquid companies, has large gap with the concept of a “market that global investors can invest in.”
- JPX Prime 150 Index is expected to solve the problem of TOPIX buying up companies of low quality and not engaging with companies due to the large number of components.
- Neither index is expected to differ much in performance since they are both market capitalization-weighted indices, but the difference in component stocks compared to TOPIX will provide investment opportunities.
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