Brief Industrials: Fujitec (6406) Value Buy and more

In this briefing:

1. Fujitec (6406) Value Buy
2. DHICO Rights Offer: Ceiling Price at ₩5,550 & Today Is Last Day Before Ex-Rights
3. HK Connect Discovery Weekly: Mainland Investors Buying WH Group (2019-03-22)
4. Kosaido (7868 JP) Reaches Value You Can Sell
5. Hitachi Bumps Yungtay Bid to NT$65. Take It.

1. Fujitec (6406) Value Buy

The shares are cheap. The company is cash rich and owns 10% in treasury stock; it owned more last year but has cancelled 4%. It has some Y6bn in long term investment. EV in our view is Y57bn vs the current market cap of Y110bn. With ebitda next year coming in at Y15bn, EV/ebitda is under 4x. The shares yield 3.4% and trade at book. They have slightly underperformed the market over the last 12 months. For now, we view this as a defensive buy. There remain many issues longer term as to its place in the global elevator world. A potential positive, however, is that in May the company will announce a new mid-term plan and in it, they will outline their view as regards to shareholder returns for the next three years. They are aware that they are very over capitalised, so greater returns are a real possibility.

2. DHICO Rights Offer: Ceiling Price at ₩5,550 & Today Is Last Day Before Ex-Rights

• DHICO rights offer 1st round pricing was fixed at ₩5,550. This ₩5,550 will serve as the ceiling. It is nearly guaranteed that the final offer price will be fixed somewhere between ₩5,000 and ₩5,550. It can not go lower than the face value ₩5,000.
• Today (Mar 26) is the last day to get subscription rights. Subscription rights will be then tradable on Apr 19~25. The 4 bookrunners will buy all forfeited shares at a 15% discount to final offering price. There is no cancellation risk.
• Local arb traders made their move yesterday. Foreign arb traders entered as well. Past tendency shows buying earlier would pay off more handsomely than waiting longer. DHICO’s fundamentals isn’t showing any positive sign yet. Deal structure isn’t helping improve street sentiments either. This event needs a lot of arb traders to hit the target. This is another relief point for those making early trades.

3. HK Connect Discovery Weekly: Mainland Investors Buying WH Group (2019-03-22)

In our Discover HK Connect series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine. We will discuss the stocks that experienced the most inflow and outflow by mainland investors in the past seven days.

We split the stocks eligible for the Hong Kong Connect trade into three groups: component stocks in the HSCEI index, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.

In this insight, we highlight the WH Group, which led the inflows last week. 

4. Kosaido (7868 JP) Reaches Value You Can Sell

On Monday the 18th of March, Yoshiaki Murakami-associated companies announced they had raised their stake in Kosaido Co Ltd (7868 JP) above 10%. That stake raise happened at a price ABOVE where Bain Capital Japan’s bidding entity had set its “final” Tender Offer Price of ¥700/share beforehand, indicating there was no way Murakami-associated companies would accept Bain’s price.

On the 20th, Minami Aoyama Fudosan – another Murakami-associated company heretofore uninvolved – announced a Tender Offer for a minimum of 50.00% of Kosaido (and up to 100% of the shares out) at ¥750/share (and announced they had bought more bringing their stake to 13.47% in total). 

The shares reacted strongly Friday the 22nd after a market holiday Thursday, rising 16.6% to close 14.5% through the Murakami-fund terms. 

After the close on Friday, the Murakami-affiliated company Reno KK which has been the lead entity to date in the effort – announced a larger position (as I noted on the 19th was likely). Also after the close, Kosaido itself made three public releases.

It is worth reading them, and it is worth thinking about what the company’s options are.

And now there is more below.

5. Hitachi Bumps Yungtay Bid to NT$65. Take It.

This was the basis of the trade. Hitachi Ltd (6501 JP) has been susceptible to pressure for a bump since even before the Tender Offer was announced because of the proxy fight at last year’s board meeting for management rights. Hitachi supported the incumbent who consequently retired as chairman, but kept the continuity. The board was split 6:3. 

Since late January or early February when it became clear that board support for the deal was still split 6:3 and one of the points in a couple of the independent directors’ comments as reasons why the deal was not supported was that Hitachi’s bid at NT$60/share did not match an informal offer from Otis at $63/share, it has been clear that one way to extinguish that criticism was to bid NT$63 or higher. 

And now Hitachi has. After the close on Friday, a release from Yungtay Engineering (1507 TT) hit the mops system saying that Hitachi had amended the Public Purchase statement by raising the Purchase Price to NT$65/share. This is closer to the high end of the original valuations provided by the law firm and public accountancy firms of NT$40.27-68.31 and NT$55.15-67.83. Taiwan Hitachi Elevator released a press release carried by the ChinaTimes here.

Past coverage of this situation can be found at:
28 Oct 2018 – Going Up! Hitachi Tender for Yungtay Engineering (1507 TT)
17 Jan 2019 – Hitachi Tender for Yungtay Engineering Launches
26 Feb 2019 – Yungtay Noises Haven’t Produced a Result Yet
18 Mar 2019 – Yungtay Tummy Rumblings Continue But Not Clear To What Avail