In this briefing:
- Monthly Geopolitical Comment: Waiting for Trump and Xi to Clinch a Deal
- Subaru: Another Month, Another Recall
- Japan Stock Weekly
- Optorun (6235) Orders Bottoming and 5G Will Benefit the Company Considerably. BUY
- Taisho To Launch Another DHG Pharma Tender
1. Monthly Geopolitical Comment: Waiting for Trump and Xi to Clinch a Deal
In the past month, positive announcements from both sides stoked hopes for a trade deal between the US and China. Meanwhile, global security deteriorated, with two more regions finding themselves on a brink of war. A major terrorist act in Kashmir provoked a sharp increase in tensions between India and Pakistan. Venezuela’s opposition leader has called for foreign powers to intervene after deadly clashes on the Colombian border. On the other hand, investors should be relieved by the relatively calm situation in Nigeria where incumbent president Buhari won the election last weekend. In Brazil, newly elected president Bolsonaro hopes to push through radical pension reform.
2. Subaru: Another Month, Another Recall
Subaru Corp (7270 JP) issued yet another recall notice last night, this time for the Impreza and Forester due to faulty brake lights. The recall affects vehicles manufactured between Sep 2008 and Mar 2017, but is minor in scope relative to the Nov 2018 valve spring recall and thus did not prompt a revision of the company’s guidance.
3. Japan Stock Weekly
Hitachi Chemical (4217) – bad news now all in the price and and the shares are cheap, we expect earnings to recover to 3/20.
Optorun (6235) – a strong beneficiary of the 5G roll out.
Grace Technology (6541) – a very interesting micro-cap with strong growth potential. M&A has the potential to significantly reduce the stated per.
4. Optorun (6235) Orders Bottoming and 5G Will Benefit the Company Considerably. BUY
Given the slowdown in Apple orders, which are only part of the story here, the shares have been a dreadful performer. They have underperformed TOPIX by 40% over the last 12 months and are 40% off their July 2018 high. They now trade on 11x this year’s numbers (and yield 2.7%), which we believe to be conservative. With the roll out of 5G orders next year will surely be up as well. We would buy at current levels.
5. Taisho To Launch Another DHG Pharma Tender
After the close on 28 February 2019, Taisho Pharmaceutical Holdings (4581 JP)announced it would launch another Tender Offer, this time to purchase up to 21.7% of the Vietnam-listed DHG Pharmaceutical Jsc (DHG VN) a.k.a. Duoc Hau Giang Pharmaceutical JSC.
On 3 July 2018, the company announced that it had received approval from the State Securities Commission (SSC) to raise the foreign ownership limit to 100%, with official disclosure of it going into effect 4 July. Shortly afterwards, Taisho launched a Tender Offer to purchase 7.06% of the shares outstanding of DHG, with the intention to get to 32.00%. Taisho registered to buy more shares last autumn, and bought a further 925,200 shares on 20 February to bring their stake to 34.99%, and now they intend to move to 56.69%.
This next one threatens a much higher minimum pro-ration, BUT it is at the same price as the last one, and while this is at a significant premium to a one-month or three-month average trading price, it is less than a 3.5% premium to Wednesday’s close of VND 116,000/share.
More below the fold.
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