Equity Analyst, LightStream Research

Oshadhi Kumarasiri

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/kirin-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:16977:1" rel="noopener">Kirin Holdings (2503 JP)</a> is a diversified beverages company producing beer, other alcoholic beverages, soft drinks and dairy products. The company is also involved in other business lines such as pharmaceuticals, cosmetics, and biochemicals. Kirin holds the number two position in the Japanese RTD [ready-to-drink] market.</p>

Kirin Holdings (2503 JP) is a diversified beverages company producing beer, other alcoholic beverages, soft drinks and dairy products. The company is also involved in other business lines such as pharmaceuticals, cosmetics, and biochemicals. Kirin holds the number two position in the Japanese RTD [ready-to-drink] market.

Kirin Capitalising on RTD [Ready-To-Drink] Boom While Closed Bars Drowns Asahi

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Capital Markets

<p>Today after the close it was <a href="https://www.globenewswire.com/news-release/2020/10/06/2103999/0/en/Danone-intends-to-sell-its-stake-in-Yakult.html" target="_blank" rel="noopener">announced</a> that <a href="https://www.smartkarma.com/entities/danone-sa" target="_blank" data-smartkarma-citation="entities:21403:1" rel="noopener">Danone SA (BN FP)</a> - currently the largest shareholder in <a href="https://www.smartkarma.com/entities/yakult-honsha-co-ltd" target="_blank" data-smartkarma-citation="entities:17153:1" rel="noopener">Yakult Honsha (2267 JP)</a> - intended to sell down the last of its stake after a 20-year run.</p><p>The press release notes <em>"Danone's collaboration with Yakult began in 2004."</em></p><p>That's saying it nicely. Danone bought 5% in 2000 then bought up to 20% in the market in 2003 in an effort to get Yakult to collaborate. It was not done with Yakult's permission, but it got their attention.</p><div>
<p>Yakult and Danone signed an <em>Alliance Agreement</em> in March 2004. That agreement was renewed in 2008 so the agreement would stay in place until 2012. In 2012, negotiations on the future alliance were extended and extended and finally, in late April 2013 - after a year-plus of jawboning and speculation of a hostile bid, occasionally dampened by public promises to the contrary by Danone executives - the two companies decided they could not, in the end, agree, and they cancelled their <em>Strategic Alliance</em> and signed a <em>Memorandum of Understanding on a Collaborative Relationship</em>.</p>
<p>The lack of hostile action by Danone may have been the result of the fact that Yakult-friendly Japanese corporate investors bought shares in the meantime, lifting the share price by 60-70% in a year and lifting the friendly ownership to over 50%, making hostile action essentially futile. </p>
</div><div>
<p>That relationship basically stood as a standstill agreement with 3 Danone appointees named to the Yakult board, and ongoing JV operation in their 50/50 Vietnam and 80/20 (Yakult/Danone) Joint Ventures and ongoing 'collaboration' in the probiotics business. Since the big buy in 2003, including dividends, Danone was up 500% on its investment as of February 2018 when it decided to sell down a very large stake after activist Corvex Management had taken on Danone and urged it to reduce capital assets which didn't provide much. At the time, Yakult traded at 20x EV/EBITDA and 36x PER. </p>
<h2>The NEW News</h2>
<p>Danone is bailing on the rest of the stake while the existing commercial partnerships, "including joint-ventures in India and Vietnam remain in place" (according to the <a href="https://ml-eu.globenewswire.com/Resource/Download/768c55f8-a7c0-4ba7-b4e8-9f01bf4bef68" target="_blank" rel="noopener">announcement</a>).</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/163/665/original/Screenshot%202020-10-06%20at%204.58.37%20PM.png?1601974734" class="editor-image img-responsive" data-smartkarma-image-id="163665"></figure><p></p>
<p>The weekly chart shows they did not catch the top last time (14 Feb 2018 announcement when the stock was ¥7940/share), but they enjoyed a nice run-up from a year prior. At the time, both TOPIX and TOPIX FOOD Sector indices had taken a sharp drop.</p>
<p>After the announcement the last time, the shares fell 6.8% on the next day. That time was a Public Offering which required a book building phase and then delivery saw a couple of weeks of large volume. The shares traded in line with market and sector before falling in April and May 2018. Since then, the shares have largely underperformed both TOPIX and the sector.</p>
<p>This deal is an Accelerated Block Offering. It makes things more interesting. Valuations are different than last time and the shareholder structure is different too. </p>
<p>Much more below the fold.</p>
</div>

Today after the close it was announced that Danone SA (BN FP) - currently the largest shareholder in Yakult Honsha (2267 JP) - intended to sell down the last of its stake after a 20-year run.The press release notes "Danone's collaboration with Yakult began in 2004."That's saying it nicely. Danone bought 5% in 2000 then bought up to 20% in the market in 2003 in an effort to get Yakult to collaborate. It was not done with Yakult's permission, but it got their attention.
Yakult and Danone signed an Alliance Agreement in March 2004. That agreement was renewed in 2008 so the agreement would stay in place until 2012. In 2012, negotiations on the future alliance were extended and extended and finally, in late April 2013 - after a year-plus of jawboning and speculation of a hostile bid, occasionally dampened by public promises to the contrary by Danone executives - the two companies decided they could not, in the end, agree, and they cancelled their Strategic Alliance and signed a Memorandum of Understanding on a Collaborative Relationship.
The lack of hostile action by Danone may have been the result of the fact that Yakult-friendly Japanese corporate investors bought shares in the meantime, lifting the share price by 60-70% in a year and lifting the friendly ownership to over 50%, making hostile action essentially futile. 

That relationship basically stood as a standstill agreement with 3 Danone appointees named to the Yakult board, and ongoing JV operation in their 50/50 Vietnam and 80/20 (Yakult/Danone) Joint Ventures and ongoing 'collaboration' in the probiotics business. Since the big buy in 2003, including dividends, Danone was up 500% on its investment as of February 2018 when it decided to sell down a very large stake after activist Corvex Management had taken on Danone and urged it to reduce capital assets which didn't provide much. At the time, Yakult traded at 20x EV/EBITDA and 36x PER. 
The NEW News
Danone is bailing on the rest of the stake while the existing commercial partnerships, "including joint-ventures in India and Vietnam remain in place" (according to the announcement).

The weekly chart shows they did not catch the top last time (14 Feb 2018 announcement when the stock was ¥7940/share), but they enjoyed a nice run-up from a year prior. At the time, both TOPIX and TOPIX FOOD Sector indices had taken a sharp drop.
After the announcement the last time, the shares fell 6.8% on the next day. That time was a Public Offering which required a book building phase and then delivery saw a couple of weeks of large volume. The shares traded in line with market and sector before falling in April and May 2018. Since then, the shares have largely underperformed both TOPIX and the sector.
This deal is an Accelerated Block Offering. It makes things more interesting. Valuations are different than last time and the shareholder structure is different too. 
Much more below the fold.


Danone Sells The Last of Their Yakult - Buy the Cleanup

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Asahi Group Holdings / Equity Capital Markets

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/157/615/original/2020-09-08_07-30-08.png?1599517826" class="editor-image img-responsive" data-smartkarma-image-id="157615"></figure><div class="content-caption">Source for all charts: Japan Analytics</div><p><strong><a href="https://www.smartkarma.com/entities/asahi-group-holdings-ltd" target="_blank" data-smartkarma-citation="entities:10482:1" rel="noopener">Asahi Group Holdings (2502 JP)</a></strong>- Following AGH's successful share placement to finance the CUB acquisition, this Insight provides new and long-suffering shareholders with an evaluation of the company's performance and valuation. Where relevant, we shall compare AGH with its domestic rival <a href="https://www.smartkarma.com/entities/kirin-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:16977:1" rel="noopener">Kirin Holdings (2503 JP)</a>.  The thirty-year correlation between the two company's share prices is 0.89.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/157/623/original/2020-09-08_10-09-47.png?1599527397" class="editor-image img-responsive" data-smartkarma-image-id="157623"></figure>

Source for all charts: Japan AnalyticsAsahi Group Holdings (2502 JP)- Following AGH's successful share placement to finance the CUB acquisition, this Insight provides new and long-suffering shareholders with an evaluation of the company's performance and valuation. Where relevant, we shall compare AGH with its domestic rival Kirin Holdings (2503 JP).  The thirty-year correlation between the two company's share prices is 0.89.

🇯🇵 Japan • Asahi Group Holdings (2502 JP) - A Return & Valuation Perspective

<p>After the Australian government blocked Kirin’s proposed sale of Lion Dairy &amp; Drinks (LDD) to <a href="https://www.smartkarma.com/entities/china-mengniu-dairy-co" target="_blank" data-smartkarma-citation="entities:354:1" rel="noopener">China Mengniu Dairy Co (2319 HK)</a> in late August, <a href="https://www.smartkarma.com/entities/kirin-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:16977:1" rel="noopener">Kirin Holdings (2503 JP)</a> announced that it has terminated the agreed-upon contract with China Mengniu Dairy and is reassessing its plans for the Lion Dairy and Drinks business.</p><p>Last week, Blomberg reported, citing unnamed sources, that Kirin is restarting conversations with those who previously conveyed interest in buying the business.</p>

After the Australian government blocked Kirin’s proposed sale of Lion Dairy &amp; Drinks (LDD) to China Mengniu Dairy Co (2319 HK) in late August, Kirin Holdings (2503 JP) announced that it has terminated the agreed-upon contract with China Mengniu Dairy and is reassessing its plans for the Lion Dairy and Drinks business.Last week, Blomberg reported, citing unnamed sources, that Kirin is restarting conversations with those who previously conveyed interest in buying the business.

Kirin Restarts LDD Sale After China Mengniu Deal Falls Through

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

<div>
<p><a href="https://www.smartkarma.com/entities/asahi-group-holdings-ltd" target="_blank" data-smartkarma-citation="entities:10482:1" rel="noopener">Asahi Group Holdings (2502 JP)</a> announced its plans to raise around US$1.6bn (JPY172bn) to fund the acquisition of CUB on 25th Aug 2020, you can read my thoughts on the deal in <a href="https://www.smartkarma.com/insights/asahi-group-placement-finally-it-s-time-to-lift-the-overhang-trade-ideas-from-past-large-deals" target="_blank" rel="noopener">Asahi Group Placement - Finally, It’s Time to Lift the Overhang! Trade Ideas from past Large Deals.</a></p>
<p>Despite the company issuing new and treasury share worth nearly 10% of its existing shares, the shares have held up remarkably well. </p>
<p>In this insight, I'll compare the shares performance versus how past large deals have traded in Japan.</p>
</div><div><p>Previous insights on the deal:</p></div><div><ul style="list-style-type: disc;">
<li><a href="https://www.smartkarma.com/insights/trade-idea-asahi-group-usd2bn-placement-overhang" target="_blank" rel="noopener">Trade Idea: Asahi Group - USD2bn Placement Overhang</a></li>
<li><a href="https://www.smartkarma.com/insights/placement-trade-idea-asahi-group-accc-approval-makes-us-2bn-placement-just-a-matter-of-time" target="_blank" rel="noopener">Placement/​Trade Idea: Asahi Group - ACCC Approval Makes US$2bn Placement Just a Matter of Time</a></li>
<li><a href="https://www.smartkarma.com/insights/placement-trade-idea-asahi-group-wants-to-delay-the-inevitable-us-2bn-block" target="_blank" rel="noopener">Placement/​​Trade Idea: Asahi Group - Wants to Delay the Inevitable US$2bn Block</a></li>
<li><a href="https://www.smartkarma.com/insights/asahi-group-placement-tracker-no-signs-of-a-placement-even-though-net-debt-to-ebitda-is-at-8-2x" target="_blank" rel="noopener">Asahi Group Placement Tracker - No Signs of a Placement Even Though Net Debt to EBITDA Is at 8.2x</a></li>
</ul></div>


Asahi Group Holdings (2502 JP) announced its plans to raise around US$1.6bn (JPY172bn) to fund the acquisition of CUB on 25th Aug 2020, you can read my thoughts on the deal in Asahi Group Placement - Finally, It’s Time to Lift the Overhang! Trade Ideas from past Large Deals.
Despite the company issuing new and treasury share worth nearly 10% of its existing shares, the shares have held up remarkably well. 
In this insight, I'll compare the shares performance versus how past large deals have traded in Japan.
Previous insights on the deal:
Trade Idea: Asahi Group - USD2bn Placement Overhang
Placement/​Trade Idea: Asahi Group - ACCC Approval Makes US$2bn Placement Just a Matter of Time
Placement/​​Trade Idea: Asahi Group - Wants to Delay the Inevitable US$2bn Block
Asahi Group Placement Tracker - No Signs of a Placement Even Though Net Debt to EBITDA Is at 8.2x


Asahi Group Placement - Quick Note - Needs to Correct Some More or Offer a Bigger Discount

Japan

Kirin Holdings Company, Limited produces beer, soft drinks, food products, whisky, and pharmaceuticals.  The Company sells its products in Japan and overseas.

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Kirin Holdings (2503 JP)

Kirin Capitalising on RTD [Ready-To-Drink] Boom While Closed Bars Drowns Asahi

Kirin Holdings is a diversified beverages company producing beer, other alcoholic beverages, soft drinks and other dairy products. The company is...

Oshadhi Kumarasiri

Danone Sells The Last of Their Yakult - Buy the Cleanup

Today after the close it was announced that $Danone

Travis Lundy

🇯🇵 Japan • Asahi Group Holdings (2502 JP) - A Return & Valuation Perspective

Asahi Group Holdings (2502 JP)

Campbell Gunn

Kirin Restarts LDD Sale After China Mengniu Deal Falls Through

After the Australian government blocked Kirin’s proposed sale of Lion Diary & Drinks (LDD) to China Mengniu Dairy in late August, Kirin...

Oshadhi Kumarasiri

Asahi Group Placement - Quick Note - Needs to Correct Some More or Offer a Bigger Discount

Asahi Group Holdings (2502 JP) announced its plans to raise around US$1.6bn (JPY172bn) to fund the acquisition of CUB on 25th Aug. The acquisition...

Sumeet Singh

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