In today’s briefing:
- Toshiba – Privatisation Rebuttal and Then a Change in CEO…
- Nikkei 225 Change – Shinsei (8303) OUT, ORIX (8591) IN
- Nikkei 225 Index Rebalance: ORIX (8591) Replaces Shinsei Bank (8303)
- Nexon – Founder Kim Jung-Ju Passes, Raises Question if Nexon Deal Is Back In Play
- Japan Cybersecurity: Frequent and Sophisticated Cyber-Attacks Drive Demand
- The Passing of Nexon Founder KJJ & Controlling Stake Sale Event 2.0
- Nikkei Trade Levels
- Japan’s Governance: Do Companies Improve Their Corporate Governance when Profitability Improves?
- Money Forward (3994): Announced Upward Revision of 1Q Guidance
- Misumi Group (9962): Approach with Caution
Toshiba – Privatisation Rebuttal and Then a Change in CEO…
- Yesterday Bloomberg published an interview with Toshiba CEO Satoshi Tsunakawa where he effectively said a privatisation was not going to happen.
- Today, Toshiba announced that Tsunakawa and his deputy, Mamoru Hatazawa would be resigning effective immediately.
- What an interesting coincidence… one which could make shorting Toshiba quite attractive.
Nikkei 225 Change – Shinsei (8303) OUT, ORIX (8591) IN
- The Nikkei Index team announced changes to the Nikkei 225 Average today after the close.
- Shinsei Bank (8303) is OUT and ORIX (8591) is IN based on the new rule changes effective with the new market structure in place at the TSE on 4 April.
- There is a special sit on Shinsei, and ORIX has several days to buy. It could be interesting.
Nikkei 225 Index Rebalance: ORIX (8591) Replaces Shinsei Bank (8303)
- Orix Corp (8591) replaces Shinsei Bank (8303) in the Nikkei 225 at the close of trading on 1 April due to Shinsei Bank not trading on the Prime Market.
- We estimate there will be passive buying of 27.5m shares on Orix Corp (8591 JP) while there will be selling of 2.75m shares on Shinsei Bank (8303 JP)
- There appears to be some pre-positioning on Orix Corp (8591 JP) – the stock could outperform heading into index inclusion.
Nexon – Founder Kim Jung-Ju Passes, Raises Question if Nexon Deal Is Back In Play
- The founder and former chairman and CEO of Nexon (3659 JP) passed away according to both Nexon and his holding company NXC. Both announced it late afternoon 1 March.
- NXC – the near-parent (47+% stake) of Nexon tried to sell Nexon/NXC in H1 2019 to no avail. Since then, profits have rebounded somewhat, and investments have multiplied.
- The estate may wish to sell Nexon shares, or its entire stake, at some point near-term.
Japan Cybersecurity: Frequent and Sophisticated Cyber-Attacks Drive Demand
- The demand for cybersecurity products and services has been expanding in Japan amidst an increase in frequent and sophisticated cyber-attacks in the country.
- Due to shortage of in-house IT professionals with knowledge on cyber security, there has been growing demand for outsourced managed security services in Japan.
- We have identified Trend Micro Inc (4704 JP) as our top pick in the Japanese cyber security market as there is further potential for top line and margins to expand.
The Passing of Nexon Founder KJJ & Controlling Stake Sale Event 2.0
- We should pay the most attention to what choices and decisions the bereaved family will make concerning the stakes and management rights of the deceased in NXC.
- This opens the possibility that the KJJ’s stake sale event in 2019 will happen again in the foreseeable future.
- Under these circumstances, there is a possibility that short-term momentum trading aimed at tender offers to minority shareholders following the sale of Nexon’s major shareholder stake will surge.
Nikkei Trade Levels
- Japan’s Nikkei 27,000 inflection lows are under pressure and expected to give way in Q2. We outline a near term give back, recovery rise into the higher degree sell zone.
- RSI displays a more bullish tactical lean (bull divergence and constructive wedge) into near term weakness.
- Nikkei 28,300 is the macro sell zone. Near term pivot support at 26,200.
Japan’s Governance: Do Companies Improve Their Corporate Governance when Profitability Improves?
- This article examines changes in corporate governance practices of 1,713 as well as changes in market caps, viewing the improvement in profitability as a change in ROA.
- While ROA improvements haven’t motivated board practices to improve, they’ve tended to pay more attention to use of cash in key actions, but are somewhat biased toward shareholder-returns than investments.
- Lower valuations were the main reason for the largest declines in market capitalization for the companies with the largest improvements in ROA over the last 13 months.
Money Forward (3994): Announced Upward Revision of 1Q Guidance
Upward revision of sales and profit guidance. A mix of good and bad news
The company raised its sales guidance by 350m yen and raised its EBITDA and OP guidance by 800m yen.
The upward revision of sales guidance is due to 1) higher recurring and non-recurring revenue in the Business domain and 2) higher non-recurring revenue in the Finance domain
Misumi Group (9962): Approach with Caution
- The shares have dropped back nearly 30% and their valuation is now reasonable. Guidance looks reasonable, but recent sales and profit trends show weakness.
- Factory Automation, Die Components and the VONA e-commerce business have all recovered.
- A new era of higher profitability may be at hand, but in view of market and economic uncertainty, approach with caution.
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