In this briefing:
- 🇯🇵 Japan • Winter Large Cap Results & Revision Scores – Contrarian Buys & Sells/​Peak & Ex-Growth
- Yungtay Noises Haven’t Produced a Result Yet
- Kosaido (7868 JP) TOB Extended
- MODEC:Â Add
- Indonesia Property – In Search of the End of the Rainbow – Part 2 –Â Bumi Serpong Damai (BSDE IJ)
1. 🇯🇵 Japan • Winter Large Cap Results & Revision Scores – Contrarian Buys & Sells/​Peak & Ex-Growth
![](https://static-prod.smartkarma.com/images/media/000/080/230/original/2019-02-26_16-49-25.png?1551182690)
Source: Japan Analytics
LARGE CAP RESULTS & REVISION SCORESÂ – The final instalment of our series of reviews of Japan’s most recent earnings and revisions announcements covers the Results & Revision Scores for Japan’s 785 larger capitalisation companies with a market capitalisation of over ÂĄ100b.
In the DETAILÂ section below we look at:-Â
- The 30 top and bottom-ranked companies by Results & Revision Score as well as the top and bottom thirty ranked by change in score over the last quarter and provide brief comments on companies and topics of note.
- By comparing Results Scores and Forecast/Revision Scores, we sort companies into‘Optimists’, ‘Pessimists’, ‘Increasingly Optimistic’ and ‘Increasingly Pessimistic‘ categories.
- As shown above, the relationship between the Results & Revision Score (RRS) and our Relative Price Score (RPS) for each company and divide the large-cap universe into four ‘quadrants’ – ‘Contrarian Buy’ (Low RRS & Low RPS) , ‘Contrarian Sell’ (High RRS & High RPS), ‘Peak Growth’ (High RRS & Low RPS) and ‘Ex-Growth/Turnaround’ (Low RRS & High RPS), highlighting the outliers in each quadrant.
- In the two ‘Contrarian‘ quadrants, the market is aligned with the current earnings momentum of the companies suggesting opportunities exist only for those willing or brave enough to take a contrarian view.Â
- For ‘Peak Growth‘, the market is calling for a downturn in momentum that has yet to be reflected in quarterly earnings. Where the cycle is more prolonged than expected, there are often opportunities for short-term rebounds in what are normally relatively-inexpensive companies.
- The ‘Ex-Growth‘ quadrant often consists of former ‘Contrarian Sell‘s where the market is reluctant to acknowledge that the cycle has turned. This quadrant can also contain ‘Turnarounds‘ – formerly ‘Contrarian Buys‘ where the market is correctly anticipating a change in fortunes. Â
- Finally, we provide tables of the top and bottom five ranked companies in each of our 30 Sectors.
2. Yungtay Noises Haven’t Produced a Result Yet
After almost three months of preparation after the initial news came out in October, Hitachi Ltd (6501 JP) launched its Tender Offer for Yungtay Engineering (1507 TT) in mid-January 2019.Â
The background of the two companies’ relationship, the board kerfuffle last year, and some detail on the financials and the growth of the Chinese mainland elevator market was discussed extensively in Going Up! Hitachi Tender for Yungtay Engineering (1507 TT)at the end of October. When the Tender Offer was confirmed as launched, additional details were provided in Hitachi Tender for Yungtay Engineering Launches.
Since then, there has been a litany of small “nuisance” events which so far have not resulted in any changes to the terms of the Tender Offer, but keeping a watchful eye is recommended.
3. Kosaido (7868 JP) TOB Extended
As discussed in previous insights, Kosaido Co Ltd (7868 JP) is currently the subject of a TOB (Takeover Bid) by an SPV established by Bain to acquire all the shares outstanding. This has been discussed in three different insights so far.
 ❖ Smallcap Kosaido (7868 JP) Tender Offer: Wrong Price But Whaddya Gonna Do?
  ❖ Kosaido: Activism Drives Price 30+% Through Terms
  ❖ Kosaido TOB: Situation Gets Weird – Activists+Independent Opposition to MBOÂ
The TOB started as a lowball price TOB with the explanation that the MBO was needed to rehabilitate the printing/information business which makes up three-quarters of consolidated revenue of the company and is the basis upon which the company was founded decades ago.
A read between the lines showed quite quickly that the more ostensible reason for taking the company private was to be able to own 61% of the company which provided the other 25% of consolidated revenue and made up materially all of the operating profit of Kosaido over the past few years. And that business was being bought at just over half of book while the rest of the business was being bought for effectively zero.
My first insight questioned that despite “independent directors” not doing so, and an activist in the form of Yoshiaki Murakami’s firm Reno KK did something about it, quickly buying just under 10% of the company in the two weeks after announcement. On that news, the stock shot up to 30-40% through terms, and fell back, but since it started rising above terms and peaking, it has not fallen below about 15% through terms.
![](https://static-prod.smartkarma.com/images/media/000/080/203/original/Screenshot%202019-02-26%20at%205.40.10%20PM.png?1551174041)
The New News
YESTERDAY, the directors of Kosaido released an amendment to their Statement of Support of the Tender Offer adding a phrase to the effect that “subsequent to the initial meeting where all the statutory auditors had expressed support, at the Board Meeting on the 25th of February, Independent Statutory Auditor Nakatsuji-[san] expressed his opposition to the Tender Offer.” This follows his notice of opposition on the 19th.
TODAY, the Offeror announced an Amendment to the Tender Offer and was extending its Tender Offer by 7 business days – from 30 business days to 37 business days – which has the effect of changing the Closing Date from March 1 to March 12.
Terms & Schedule of Bain (BCJ-34) Tender Offer for Kosaido Co., Ltd | |
Tender Offer Price | JPY 610 |
Tender Offer Start Date | 18 January 2019 |
Tender Offer Close Date | |
Tender Agent | SMBC Securities |
Maximum Shares To Buy | 24,913,439 shares |
MINIMUM Shares To Buy | 16,609,000Â shares |
Currently Owned Shares | 100 shares |
Irrevocable Undertakings | Sawada Holdings’ 3,088,500 shares or 12.40% (includes the holdings at both Sawada Holdings and HS Securities). |
With the shares 20% through terms (ÂĄ738/share as I write) despite what appears to be no increase by the main activist in the last two weeks, the likelihood retail will tender at ÂĄ610/share this looks like a situation where the deal may fail unless there is a bump.
But it would still be up for grabs.Â
4. MODEC:Â Add
Towards the end of 2018 Modec Inc (6269 JP)‘s share price dropped 46.5% as the price of crude oil also cratered, falling 44.4% . Since that plunge, the stock price has rebounded 53.9% as the company posted excellent results at 4Q and guidance, while conservative, was for continued healthy earnings.
Having visited the company today, we believe earnings should continue to be strong and actually strengthen over the next few years with MODEC likely to start running into capacity constraints over the course of this year.
5. Indonesia Property – In Search of the End of the Rainbow – Part 2 –Â Bumi Serpong Damai (BSDE IJ)
![](https://static-prod.smartkarma.com/images/media/000/080/039/original/Screenshot%202019-02-25%20at%202.42.39%20PM.png?1551080702)
In this series under Smartkarma Originals, CrossASEAN Research insight providers Angus Mackintosh and Jessica Irene seek to determine whether or not we are close to the end of the rainbow and to a period of outperformance for the property sector. Our end conclusions will be based on a series of company visits to the major listed property companies in Indonesia, conversations with local banks, property agents, and other relevant channel checks.Â
The second company we explore is leading township developer Bumi Serpong Damai (BSDE IJ), with exposure ranging from landed housing, shophouses, condominiums, as well as the defensive and growing buffer of nearly 20% of revenues coming from recurrent rental income.
Bumi Serpong Damai (BSDE IJ) has one of the largest land banks of any developer, with a land bank of over 4,000 ha, more than half of which is in its flagship township of BSD City in Serpong.
Given its breadth of exposure to the property segment, the company has the flexibility to switch its exposure between different segments depending on the health of the overall market.Â
Its projects are well connected by toll-roads and railway but it is well positioned to benefit from new infrastructure such as the new MRT, LRT, as well as new toll road extensions, which will enhance the attractiveness of its developments. Â
Management suggests that they will take a cautious start to the year ahead of the election but see a window for a pick-up in marketing sales in May, with the potential for a much better 2H19.Â
Despite a run-up in the share price since the start of the year, valuations do not look challenging from a historical basis especially looking at its PBV. It also trades at a significant discount to NAV of 67%, as well as being below its 5 yr historical mean on a forward PER basis.
Catalysts ahead include a post-election pick-up in activity leading to more project launches, completion of infrastructure projects, aggressive mortgage lending by the banks, and a more dovish interest rate outlook. Valuations are already attractive but a rise in property market activity should also lead to earnings upgrades, which if sustained, may lead to property prices moving upwards.
Get Straight to the Source on Smartkarma
Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.