Brief Industrials: Lynas Investor Briefing – Looks Like More Capex Ahead and more

In this briefing:

1. Lynas Investor Briefing – Looks Like More Capex Ahead
2. DHICO Rights Offer: Current Status & Trade Approach
3. Last Week in GER Research: Huya, Bilibili and Qutoutiao
4. Japan Post Insurance – The ToSTNeT-3 Buyback
5. Organo (6368 JP): Company Visit Notes and Conclusions

1. Lynas Investor Briefing – Looks Like More Capex Ahead

At noon Sydney time Lynas Corp Ltd (LYC AU) held an investor briefing by webcast regarding comments made by the Malaysian Prime Minister in his first cabinet press conference on Friday 5 April 2019. Those comments were noted in the ASX regulatory update. 

2. DHICO Rights Offer: Current Status & Trade Approach

This post looks at the current trading status of DHICO rights offer on each of the major movement days. It still seems that the share price should be kept high to give the Mar 25~26 arb traders an opportunity to short. This explains recent strong prices. It is presumed that shorting hasn’t been fully done. About half is still to be shorted. This suggests that strong prices should be kept a little longer. Once this is done, we will likely see a strong downward pressure until the price hits ₩6,250. This sets the floor price at ₩5,000. This will be good time to do one-way shorting.

3. Last Week in GER Research: Huya, Bilibili and Qutoutiao

Below is a recap of the key IPO/placement research produced by the Global Equity Research team. This week, we update on the bevvy of placements offered by various companies. After placements by Pinduoduo (PDD US) and Sea Ltd (SE US) , we saw more offerings from HUYA Inc (HUYA US) , Bilibili Inc (BILI US) and Qutoutiao Inc (QTT US). We update on these three offerings and perhaps big picture, this could reflect a signalling inflection point in these shares. More details below 

In addition, we have provided an updated calendar of upcoming catalysts for EVENT driven names below. 

Best of luck for the new week – Arun, Venkat and Rickin

4. Japan Post Insurance – The ToSTNeT-3 Buyback

Japan Post Insurance (7181 JP)announced on April 4th after the close that Japan Post Holdings (6178 JP) would offer 168.1mm shares of Japan Post Insurance to the public, with another 16.9mm shares offered in an over-allotment. This is big news as it is almost 31% of the shares outstanding of Japan Post Insurance and will dramatically increase its float. 

One can say it is a big deal – ¥450bn (~US$4bn) of stock and at announcement it was equivalent to the last 477 days of traded volume. More importantly, this ALMOST like an IPO in that the placement is almost 3x the original IPO size (66mm shares) and will get a lot of foreign investor attention. 

In addition, JPI announced it would conduct a buyback for up to 50 million shares (with a spending limit of ¥100 billion) on the ToSTNeT-3 off-hours auction-like trading system on days between April 8th and April 12th. 

In its announcement of the decision to sell shares, Japan Post Holdings said that if JPI did indeed conduct the buyback, it might participate, in which case the size of the offering “may decrease.”

The stock rallied very sharply Friday, rising 3% at the open and ending the morning session up 3% but rising much further in the afternoon to end up 9.9%. 

After the close Friday, JPI announced it would spend ¥100bn to buy up to 37.411mm shares pre-open on ToSTNeT-3 on Monday morning. That is 6.2% of shares outstanding. 

Understanding the dynamics and the rules here AND about the offering may tell you something about how this will work. 

5. Organo (6368 JP): Company Visit Notes and Conclusions

• Organo has rebounded from December’s sharp sell-off, but remains attractively valued on a long-term view, in our estimation. 
• New orders for water treatment systems from the semiconductor and other industries were up 22% year-on-year and exceeded sales by 33% in the nine months to December.
• According to management, orders continued to exceed sales in the three months to March, but are likely to drop below sales in 1H of FY Mar-20 due to the downturn in memory ICs.
• But the situation is not dire, as overall silicon wafer shipments and demand for image sensors both continue to rise, while foundry is doing better than memory.
• Longer term, management expects growth driven by IIoT, power devices,  electric vehicles, and a cyclical recovery in memory. The biggest uncertainty is Chinese domestic demand.
• Some orders have been deferred by one or two quarters, but the company has so far not suffered any cancellations. With a one-year lag from order to revenue recognition for larger projects, management believes it has sufficient visibility to predict improvement in 2H.
• Management has no plans to revise FY Mar-19 guidance, which is for a 14.9% increase in sales, a 43.9% increase in operating profit and a 33.1% increase in net profit to ¥322.5 per share. At ¥3,200 (Friday, April 5 closing price), this translates into a P/E ratio of 9.9x.
• In our estimation, this is cheap enough to be of interest to long-term investors. In the meantime, the calculations of Japan Analytics show upside to a no-growth valuation. Little or no growth appears to be the most likely scenario for FY Mar-20.

• Organo is Japan’s second-ranking industrial water treatment company after Kurita Water Industries (6370). Both provide ultra-pure water processing equipment and related products and services to the semiconductor industry. Kurita ranks first in Japan and Korea, Organo ranks first in Taiwan, and both companies compete in China.