Daily Brief Japan: Tsuruha Holdings, Rakuten Bank , Toei Animation, Keisei Electric Railway Co, Appier Group, Rakuten Group , Carta Holdings, Inc., TSE Tokyo Price Index TOPIX, Morito Co Ltd and more

• Over the weekend there was an article in the Nikkei saying that Tsuruha Holdings (3391 JP) and Welcia Holdings (3141 JP) were considering a merger. Other media outlets followed.
• This has been a possible outcome. Aeon Co Ltd (8267 JP) owns 51% of Welcia, 13.6% in Tsuruha, and is negotiating to buy another 13% in Tsuruha from Oasis.
• This would create a behemoth. ¥2.2trln in revenues vs ¥1trln for MatsukiyoCocokara (3088 JP). It would be 25% of the market. Questions will be asked about concentration. 

• The Rakuten Bank offering in early December was a great time to buy the dip of you sold end-September. It should have been a good time to buy outright.
• Unfortunately, the stock priced at ¥2,470, then closed that day at ¥2,500. That was the high for the next ten weeks. Two weeks later it was 20% lower. Ouch.
• But it climbed out of the abyss, gained 35% in 8wks, then Thursday the Bank announced a new Shareholder Benefit program. Today the stock was +7%. Worth looking at details.

• Since the US$550 million secondary placement announcement, Toei Animation (4816 JP)’s shares are down 7.0% from the undisturbed price of JPY18,560 per share (14 February).
• Looking at recent large Japanese placements is instructive to understand the potential trading pattern. So far, Toei Animation’s shares have followed the pattern of previous large placements.
• The offering will likely be priced on 27 February. Investors participating in previous large Japanese placements tend to secure positive returns.

• The possible merger between Welcia and Tsuruha under Aeon has been talked about for years despite concerns from both drugstores, but may now happen.
• But calling these retailers drugstores is increasingly a misnomer: FMCG-drugstores is better because they and many others in the sector, increasingly compete with FMCG retailers like supermarkets and even CVS.
• This evolution is rapid so the merits of a deal make more sense when we view it from a sector five years in the future than how it is today.

• Keisei Electric (9009 JP) has been an outperformer since activist fund Palliser Capital called on the company sell some Oriental Land (4661 JP) shares. It has now announced another buyback.
• Preceding my comments on Keisei Electric are the current setup/unwind tables for Asia-Pacific Holdcos.
• These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

• Post FY23 results in mid-February, Appier’s stock exhibited significant volatility, despite robust financial performance.
• We believe that Appier is a beneficiary of continued growth in ecommerce and increasing ubiquity of AI solutions for marketing.  
• Appier trades at a significant discount to global peers and domestic SaaS companies, suggesting significant upside

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Rakuten Group

• CARTA HD strives to become “The Evolution Factory” and operates mainly in the digital marketing field.
• The company was established in January 2019 through the merger of the former VOYAGE Group, which had expanded earnings by creating a series of new businesses centered on the ad tech domain, and the former Cyber Communications, the largest media rep firm in Japan.
• CARTA HD holds a 3.9% share in the Japanese online advertising market.

• P/B’s slightly higher valuations in October 2023 while ROE, EPS, and BPS did not change much were due to external factors, not internal factors.
• Clearly, improvements in ROE and ROA are effective in improving stock valuations, but valuations have further increased for companies with higher valuations and profitability for the past year.
• Some of these companies have begun to use cash more effectively for investment and shareholder returns. The gap in market capitalization between these companies and the rest will increasingly widen.

• With an apparel business, product business, and transportation business, MORITO CO.‚ LTD., (Morito) conducts planning, development, and sales of products that reflect market needs and customer demands.
• The products it sells are either produced in house or purchased from suppliers.
• Handling an extremely diverse range of products that total more than 500 thousand, the company sells those products in niche markets.