Japan Equity Analyst, all sectors

David Rubenstein

ja research

ja research is an independent research platform focused exclusively on Japanese equities. Leveraging data and graphic analysis provided by Japan Analytics, we provide insights on small and medium-sized companies that have been ignored by the sell-side as well as challenging conventional wisdom on larger companies. We also offer analyst and corporate access, the latter with translation if required. 

Equity Bottom-Up

The Nikkei newspaper reported early this morning that Hitachi (6501) will consider buying the remaining shares of Hitachi High-Tech (HHT, 8036). Hitachi currently owns 52% of HHT.  Obviously, this is officially speculation and Hitachi denies taking any concrete action, but the Nikkei usually bases its speculation on factual sources. The Nikkei article used the usual language: "It was learned that Hitachi has begun considering making Hitachi High Tech a wholly-owned subsidiary". Needless to say, the stock is currently limit up today, and other Hitachi listed subsidiaries are strong. The article mentions that a TOB for HHT would carry a Y400bn premium to the remaining 48% of the shares, which is approximately 27% upside to the closing price of Y4,750 from yesterday. The 27% upside implies a Y6,010 price versus the Y5,450 limit up price for today. Other Hitachi names in play are Hitachi Metals (5486 +3.5%), Hitachi Construction Machinery (6305 +3.1%), Hitachi Capital (8586 +2.0%), and Hitachi Chemical (4217 +0.4%).We have described the underappreciated intrinsic value of HHT in previous reports on this platform. Please refer to our previous reports including "Hitachi's Hidden Gem" from October 2018.The Nikkei mentions that the semiconductor business of HHT could be on the block as a spin-off candidate (after an alleged TOB) as it has little synergistic value with the parent's IoT ambitions. The R&amp;D cost for next generation semiconductors is also a constant burden for HHT's semiconductor division. Conversely, the article said that Hitachi values the medical side of HHT highly, and aims to combine it with the parent's health care business and raise operating profit margins from 9% to over 11% by 2021. These two points on the core medical and SPE businesses at HHT make complete sense to us and are in-line with previous rhetoric from the company. In recent months, Hitachi has been more active in pushing forward its reorganization effort. In March, Hitachi was reported to be considering selling Hitachi Chemical (4217), which sent Hitachi Chemical's stock into a frenzy. With the HHT takeover seemingly out of the bag, the next M&amp;A target would perhaps shift to the likes of Hitachi Metals or Hitachi Construction Machinery. Today's stock price movements in those two names suggest that we may hear more announcements soon.

The Nikkei newspaper reported early this morning that Hitachi (6501) will consider buying the remaining shares of Hitachi High-Tech (HHT, 8036). Hitachi currently owns 52% of HHT.  Obviously, this is officially speculation and Hitachi denies taking any concrete action, but the Nikkei usually bases its speculation on factual sources. The Nikkei article used the usual language: "It was learned that Hitachi has begun considering making Hitachi High Tech a wholly-owned subsidiary". Needless to say, the stock is currently limit up today, and other Hitachi listed subsidiaries are strong. The article mentions that a TOB for HHT would carry a Y400bn premium to the remaining 48% of the shares, which is approximately 27% upside to the closing price of Y4,750 from yesterday. The 27% upside implies a Y6,010 price versus the Y5,450 limit up price for today. Other Hitachi names in play are Hitachi Metals (5486 +3.5%), Hitachi Construction Machinery (6305 +3.1%), Hitachi Capital (8586 +2.0%), and Hitachi Chemical (4217 +0.4%).We have described the underappreciated intrinsic value of HHT in previous reports on this platform. Please refer to our previous reports including "Hitachi's Hidden Gem" from October 2018.The Nikkei mentions that the semiconductor business of HHT could be on the block as a spin-off candidate (after an alleged TOB) as it has little synergistic value with the parent's IoT ambitions. The R&amp;D cost for next generation semiconductors is also a constant burden for HHT's semiconductor division. Conversely, the article said that Hitachi values the medical side of HHT highly, and aims to combine it with the parent's health care business and raise operating profit margins from 9% to over 11% by 2021. These two points on the core medical and SPE businesses at HHT make complete sense to us and are in-line with previous rhetoric from the company. In recent months, Hitachi has been more active in pushing forward its reorganization effort. In March, Hitachi was reported to be considering selling Hitachi Chemical (4217), which sent Hitachi Chemical's stock into a frenzy. With the HHT takeover seemingly out of the bag, the next M&amp;A target would perhaps shift to the likes of Hitachi Metals or Hitachi Construction Machinery. Today's stock price movements in those two names suggest that we may hear more announcements soon. 

Hitachi High-Tech

Hitachi's Hidden Gem Out Of The Bag