In today’s briefing:
- Pasona: The Wrong Price
- Denso Offering, Buyback, and New Cross-Holding Reduction Policy – It WAS a Trap
- Huge Denso (6902) Secondary Sale by Toyota Group – Admiral Ackbar Says “It’s A Trap!”
- Denso (6902 JP): US$4.0 Billion Secondary Offering and US$1.4 Billion Buyback
- Japan – A Last Look at Shorts on Some Interesting Stocks & Positioning
- Denso – Thoughts On The Cross-Holdings Sell-Down
- Itoen Pref (25935 JP) – Big Discount, Big Buyback, No Big Governance Change
- Sapporo Holdings: Activist Investor 3D Investment Partners Assumes Majority Ownership
- Risks Ahead for Japanese Trading Companies. Marubeni, Mitsui, Sumitomo, Mitsubishi
- GAPack (468 HK): Unpacking XJF’s Move To Send The Board Packing
Pasona: The Wrong Price
- As discussed here in a piece about the Partial Tender Offer, Pasona Group (2168) has agreed to sell its controlling stake in Benefit One (2412) to M3 (2413).
- That will leave Pasona Group with a fair chunk of cash and possibly a residual stake in Benefit One, depending on the results.
- Though we don’t know what the future holds, Pasona now is the wrong price for its future.
Denso Offering, Buyback, and New Cross-Holding Reduction Policy – It WAS a Trap
- 15 minutes after I published what I thought was a considered analysis, Denso dumps the details. I thought it might be a trap. It looks like a trap.
- A holistic view of the three different documents here suggests, indeed, “It was a trap”.
- This giant offering is not bearish overhang but likely tilts bullish with greenshoe support, a large buyback, a new cross-holding reduction policy, and the follow-on effects from that.
Huge Denso (6902) Secondary Sale by Toyota Group – Admiral Ackbar Says “It’s A Trap!”
- Yesterday, Reuters reported that multiple Toyota Group companies would sell ~10% of Denso Corp (6902 JP) worth ¥700bn in a secondary share sale by year-end.
- The sellers would be Toyota, selling down to just over 20%, Toyota Industries (6201) (selling down a bit more than half, and Aisin Seiki (7259 JP) selling its 2% stake.
- Denso would buy back shares. This whole thing is both interesting and complicated so I discuss the interesting complications below. It looks bigger than it probably is.
Denso (6902 JP): US$4.0 Billion Secondary Offering and US$1.4 Billion Buyback
- Denso Corp (6902 JP) announced a secondary offering of up to 294.8 billion shares (including overallotment) and a buyback (maximum shares of 125 million or maximum value of JPY200 billion).
- Denso also announced a cross-holding reduction policy. In an unspecified timeframe, it will sell part of its holdings in Toyota Industries (6201 JP) and Aisin (7259 JP).
- Looking at recent large Japanese placements is instructive to understand the potential offer price. The pricing date will fall between 13 and 18 December (likely 13 December).
Japan – A Last Look at Shorts on Some Interesting Stocks & Positioning
- There should be liquidity events on Persol Holdings, Hakuhodo Dy Holdings, Welcia Holdings, GMO Payment Gateway, CyberAgent, Kobayashi Pharmaceutical, NGK Insulators, Lixil Group, Kurita Water Industries and Keio Corp tomorrow.
- On average, the stocks have underperformed the Nikkei 225 Index over the last 2-3 months but there has been near-term outperformance.
- There has been a big increase in shorts on the stocks over the last couple of months and positioning varies across stocks.
Denso – Thoughts On The Cross-Holdings Sell-Down
- The trend of governance reform in Japan continues with Toyota, Toyota Industries and Aisin selling shares of Denso.
- Denso is buffering some of the flow impact by repurchasing roughly half of the shares to be sold.
- While the size of these moves is relatively large we believe their impact could be disproportionately large for the market as a whole.
Itoen Pref (25935 JP) – Big Discount, Big Buyback, No Big Governance Change
- This is always a tough subject, but every now and then I throw myself on the mercy of the ho-humming crowd and write about the Ito En Prefs (25935 JP).
- No strong catalyst. Limited capacity for strongly better governance. Even less apparent corporate interest in good governance.
- But we have a mini-catalyst, and it has been a while, and I think there IS a good way to think about this stock, so here’s another crack at it.
Sapporo Holdings: Activist Investor 3D Investment Partners Assumes Majority Ownership
- Last week, activist investor 3D Investment Partners raised its stake in Sapporo Holdings (2501 JP) by an additional 13%, cementing its position as the majority shareholder in the business.
- This suggests the activist investor is optimistic about successfully advancing their proposals.
- If investment properties are sold or spun off, and Alcoholic Beverages and Food & Soft Drinks undergo the suggested turnaround, we anticipate an additional 80-100% upside in the near term.
Risks Ahead for Japanese Trading Companies. Marubeni, Mitsui, Sumitomo, Mitsubishi
- Headwinds are turning to tailwinds for the Japanese Trading companies.
- Risks rising in the short term due to JPY strength, weakening commodity prices and the upcoming US recession.
- Massive outperformance over the last two years, most recently due to multiple expansion
GAPack (468 HK): Unpacking XJF’s Move To Send The Board Packing
- Back on the 27 January 2023, Jardine Matheson (JM SP) entered an agreement with Shandong Xinjufeng (301296 CH) (XJF) to sell its 28.22% stake in GAPack (468 HK).
- That sale completed in September. Last week, XJF requisitioned an EGM to consider appointing five new (& friendly) directors, all-but taking control of the board.
- CEO and founder Jeff Bi holds 9.65%. The question is: what are his options?
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