Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Bottom-Up

Late last year, in the final run-up to the vote to determine whether Alpine (6816 JP) investors would subject themselves to a bad share exchange ratio or would choose to oblige Alps (6770 JP) to have another run at it in a different format, Alps announced a shareholder return policy which included buying back ¥40 billion of shares. It is to be noted that this meant that the combined entity was going to be left with less cash than the total deemed necessary by the two companies just a very short while before. Why? Because Alps - with the strong governance it has - obviously had the right amount - and Alpine also had the right amount (it needed substantial equity-funded cash as "working capital" because otherwise it would run a serious danger of business disruption and deterioration. So despite this severe business risk, the two companies effectively announced they would disburse 90% of Alpine's cash on hand to shareholders POST-MERGER through the special dividend offered to sweeten the pot to get the merger through, and the ¥40 billion buyback. The merger, of course, went through, and the ¥28.4 billion* buyback is proceeding apace.

Late last year, in the final run-up to the vote to determine whether Alpine (6816 JP) investors would subject themselves to a bad share exchange ratio or would choose to oblige Alps (6770 JP) to have another run at it in a different format, Alps announced a shareholder return policy which included buying back ¥40 billion of shares. It is to be noted that this meant that the combined entity was going to be left with less cash than the total deemed necessary by the two companies just a very short while before. Why? Because Alps - with the strong governance it has - obviously had the right amount - and Alpine also had the right amount (it needed substantial equity-funded cash as "working capital" because otherwise it would run a serious danger of business disruption and deterioration. So despite this severe business risk, the two companies effectively announced they would disburse 90% of Alpine's cash on hand to shareholders POST-MERGER through the special dividend offered to sweeten the pot to get the merger through, and the ¥40 billion buyback. The merger, of course, went through, and the ¥28.4 billion* buyback is proceeding apace.

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

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. 

Quantitative Analysis

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/080/728/original/2019-03-02_20-40-55.png?1551526871" class="editor-image img-responsive" data-smartkarma-image-id="80728"></figure>Source: Japan Analytics
</div>LIQUIDITY RULES - Despite the continuous stream of negative macroeconomic news from Japan and other economies, financial liquidity trends are the strongest in over two years, and much of this 'boom' is flowing into risk assets. Large-scale repatriation of offshore funds by US companies has also helped boost the US dollar against the yen. The Market Composite responded by rising 2.3% over the last two weeks, although only by 1% in US dollar terms.WEAK MACRO - Net exports and higher inventories offset private investment and consumption during the fourth quarter, resulting in flat GDP growth year-on-year. January industrial production fell to the lowest level in 30 months, and, with the manufacturing PMI nearing 50, the prospect is for further weakness this quarter. Inventories continue to rise and, in North Asia, to levels last seen in 2005. Combined with the sharp fall in exports in Japan, Korea and Taiwan, export pricing in back in deflationary territory, putting further upward pressure on real interest rates.  Meanwhile, January retail sales saw the largest month-on-month decline in over three years as department stores saw fewer Chinese tourists over the New Year.  Equity markets are living on 'borrowed time'.  <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/080/722/original/2019-03-02_18-02-59.png?1551517390" class="editor-image img-responsive" data-smartkarma-image-id="80722"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/080/724/original/2019-03-02_18-07-56.png?1551517689" class="editor-image img-responsive" data-smartkarma-image-id="80724"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/080/729/original/2019-03-02_20-41-51.png?1551526925" class="editor-image img-responsive" data-smartkarma-image-id="80729"></figure><div class="content-caption">Source: Japan Analytics</div>HOLD FOR NOW - This bear market rally is two months old and is maturing. The Value Traded ratio is below trend again, the RSI is neutral, and the Toraku is signalling caution. We expect another month of liquidity/weak Yen-driven strength before the economic realities begin to prevail.MARKET/SECTOR STRATEGY- We continue to recommend an underweight position in Japan in global portfolios and favour undervalued domestically-orientated companies in the Information Technology, Internet, Media, Transportation, Healthcare and Telecommunications sectors. We would avoid or short the financial sectors Banks, Non-Bank Finance and Multi-Industry. We would underweight the Auto, Retail and Other Consumer Products sectors as consumer spending contracts further in the US, Europe, China and Japan. In the DETAIL section below, we will review Sector performance, company results, revisions and stock performance over the previous two weeks, as well as adding some brief comments on <a href="https://www.smartkarma.com/entities/10020" target="_blank" data-smartkarma-citation="entities:10020:1">Sakai Moving Service (9039 JP)</a>, <a href="https://www.smartkarma.com/entities/20269" target="_blank" data-smartkarma-citation="entities:20269:1">Sumitomo Chemical (4005 JP)</a>, <a href="https://www.smartkarma.com/entities/8431" target="_blank" data-smartkarma-citation="entities:8431:1">Parco (8251 JP)</a>, <a href="https://www.smartkarma.com/entities/4489" target="_blank" data-smartkarma-citation="entities:4489:1">Chugai Pharmaceutical (4519 JP)</a>, <a href="https://www.smartkarma.com/entities/14674" target="_blank" data-smartkarma-citation="entities:14674:1">Nichias (5393 JP)</a>, <a href="https://www.smartkarma.com/entities/27043" target="_blank" data-smartkarma-citation="entities:27043:1">Raksul (4384 JP)</a>, <a href="https://www.smartkarma.com/entities/10503" target="_blank" data-smartkarma-citation="entities:10503:1">Daito Trust (1878 JP)</a>, and <a href="https://www.smartkarma.com/entities/14502" target="_blank" data-smartkarma-citation="entities:14502:1">Benefit One (2412 JP)</a>.


Source: Japan Analytics
LIQUIDITY RULES - Despite the continuous stream of negative macroeconomic news from Japan and other economies, financial liquidity trends are the strongest in over two years, and much of this 'boom' is flowing into risk assets. Large-scale repatriation of offshore funds by US companies has also helped boost the US dollar against the yen. The Market Composite responded by rising 2.3% over the last two weeks, although only by 1% in US dollar terms.WEAK MACRO - Net exports and higher inventories offset private investment and consumption during the fourth quarter, resulting in flat GDP growth year-on-year. January industrial production fell to the lowest level in 30 months, and, with the manufacturing PMI nearing 50, the prospect is for further weakness this quarter. Inventories continue to rise and, in North Asia, to levels last seen in 2005. Combined with the sharp fall in exports in Japan, Korea and Taiwan, export pricing in back in deflationary territory, putting further upward pressure on real interest rates.  Meanwhile, January retail sales saw the largest month-on-month decline in over three years as department stores saw fewer Chinese tourists over the New Year.  Equity markets are living on 'borrowed time'.  Source: Japan AnalyticsHOLD FOR NOW - This bear market rally is two months old and is maturing. The Value Traded ratio is below trend again, the RSI is neutral, and the Toraku is signalling caution. We expect another month of liquidity/weak Yen-driven strength before the economic realities begin to prevail.MARKET/SECTOR STRATEGY- We continue to recommend an underweight position in Japan in global portfolios and favour undervalued domestically-orientated companies in the Information Technology, Internet, Media, Transportation, Healthcare and Telecommunications sectors. We would avoid or short the financial sectors Banks, Non-Bank Finance and Multi-Industry. We would underweight the Auto, Retail and Other Consumer Products sectors as consumer spending contracts further in the US, Europe, China and Japan. In the DETAIL section below, we will review Sector performance, company results, revisions and stock performance over the previous two weeks, as well as adding some brief comments on Sakai Moving Service (9039 JP), Sumitomo Chemical (4005 JP), Parco (8251 JP), Chugai Pharmaceutical (4519 JP), Nichias (5393 JP), Raksul (4384 JP), Daito Trust (1878 JP), and Benefit One (2412 JP).   

🇯🇵 Japan • Fortnightly Update - Liquidity Rules

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/080/230/original/2019-02-26_16-49-25.png?1551182690" class="editor-image img-responsive" data-smartkarma-image-id="80230"></figure>
Source: Japan Analytics
</div>
LARGE CAP RESULTS &amp; REVISION SCORES - The final instalment of our series of reviews of Japan's most recent earnings and revisions announcements covers the Results &amp; Revision Scores for Japan's 785 larger capitalisation companies with a market capitalisation of over ¥100b.
In the DETAIL section below we look at:- 
<ul>
<li>The 30 top and bottom-ranked companies by Results &amp; 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.</li>
<li>By comparing Results Scores and Forecast/Revision Scores, we sort companies into'Optimists', 'Pessimists', 'Increasingly Optimistic' and 'Increasingly Pessimistic' categories.</li>
<li>As shown above, the relationship between the Results &amp; 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 &amp; Low RPS) , 'Contrarian Sell' (High RRS &amp; High RPS), 'Peak Growth' (High RRS &amp; Low RPS) and 'Ex-Growth/Turnaround'  (Low RRS &amp; High RPS), highlighting the outliers in each quadrant.
<ul>
<li>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. </li>
<li>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.</li>
<li>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.   </li>
</ul>
</li>
<li>Finally, we provide tables of the top and bottom five ranked companies in each of our 30 Sectors.</li>
</ul>



Source: Japan Analytics

LARGE CAP RESULTS &amp; REVISION SCORES - The final instalment of our series of reviews of Japan's most recent earnings and revisions announcements covers the Results &amp; Revision Scores for Japan's 785 larger capitalisation companies with a market capitalisation of over ¥100b.
In the DETAIL section below we look at:- 

The 30 top and bottom-ranked companies by Results &amp; 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 &amp; 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 &amp; Low RPS) , 'Contrarian Sell' (High RRS &amp; High RPS), 'Peak Growth' (High RRS &amp; Low RPS) and 'Ex-Growth/Turnaround'  (Low RRS &amp; 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. 
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.   


Finally, we provide tables of the top and bottom five ranked companies in each of our 30 Sectors.


🇯🇵 Japan • Winter Large Cap Results & Revision Scores - Contrarian Buys & Sells/​Peak & Ex-Growth

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/077/686/original/2019-02-02_09-34-42.png?1549067763" class="editor-image img-responsive" data-smartkarma-image-id="77686"></figure><div class="content-caption">Source: Japan Analytics</div><div style="text-align: left;" class="content-caption">
Note: The Results &amp; Revision Score is the average of our Results Score and Forecasts/Revision Score and is updated daily for each company and then cap-weighted-aggregated into Peer Groups, Sectors and the Market Composite. Both scores have a maximum of +30 and a minimum of -30 for each period. The Results Score is calculated quarterly, using the most recent eight quarters of company data for revenues, operating income and operating margin and measures the rate, degree and consistency of change for each metric. The Forecast/Revision Score is based on Annual and Interim period company forecasts and compares changes from previous forecasts as well as against the trailing twelve-month or previous first-half results, with annual forecasts being double-weighted.</div>DRIP, DRIP, DRIP - We 'lead' this fortnight's update with our All-Market Composite Results &amp; Revision Score. Calculated daily, the score is a 'real-time' measure of the state of, and the outlook for, listed Japanese corporations. As the scoring methodology includes earnings momentum 'factors', the data series can be a useful leading indicator of forward earnings. The correlation with the market over the last four years is 0.578, with the indicator leading more often than lagging.   Since peaking on 16th November 2017, the Results &amp; Revisions Score has fallen by 62% and has now returned to the level of May 2017. In the last ten years, the score has only been lower than at present one-third of the time - mostly during the fiscal year ended March 2017 when the total market value averaged ¥550t, close to the December 2018 low. If we are to repeat the relatively-mild cyclical downturn of 2016, the Results &amp; Revision Score will turn negative in May of this year, and the 25th December 2018 low will be retested.<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/077/701/original/2019-02-02_14-11-25.png?1549084295" class="editor-image img-responsive" data-smartkarma-image-id="77701"></figure>Source: Japan Analytics
</div>PAST THE PEAK - Our earnings indicator peaked 14 months ago, two months ahead of the market's high point on 26th January 2018. It now appears that aggregate reported earnings, as well as aggregate company forecasts for the current year, are now turning decisively lower after nine quarters of uninterrupted growth. Forecast Net Income for the current year is now 7% below the high point in trailing-twelve-month (TTM) Net Income from this cycle, which was reached two months ago. Operating Income is, as usual, 'lagging' and forecasts are still marginally ahead of TTM. The TTM all-market price-earnings ratio reached 11.5 times on Christmas Day, which will prove to be the cycle low point. We expect the return to median levels, to be achieved more through lower 'E' as opposed to a higher 'P'.  Mr Market is currently implying that Japanese corporate profits are due to fall by 23% on average from the cycle peak, or by 30% if we are to revisit the December low-point. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/077/746/original/2019-02-03_07-23-31.png?1549146223" class="editor-image img-responsive" data-smartkarma-image-id="77746"></figure><div class="content-caption">Source: Japan Analytics</div>THE FIRST CUT - 23% of listed companies reported their most recent quarterly earnings results in the last two weeks. For these companies, TTM revenues grew by 5.1% year-on-year, but only by 0.5% quarter-on-quarter, the lowest qoq growth rate in over a year. TTM Operating Income is now 0.8% lower than the TTM total of one year ago and declined by 4.4% qoq. Operating margins fell by 49bps year-on-year.  Current forecasts for this group of companies imply 3.1% yoy top line growth, but only 0.3% compared to the quarter just declared. For Operating Income, the rates are -2.0% and 0.6%, reflecting the normal TTM-to-forecast 'lag'. Corporate Japan's profits are now rolling over and will be in a 'recession' by the fiscal year-end.  <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/077/722/original/2019-02-02_18-25-46.png?1549099572" class="editor-image img-responsive" data-smartkarma-image-id="77722"></figure><div class="content-caption">Source: Japan Analytics</div>INTERREGNUM - Our bear market rally has paused to look at and digest the earnings-announcement news flow and will likely be trendless for the next few weeks as 'good' reactions offset 'bad'. In due course, we expect the preponderance of negative momentum to tip the scales.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/077/724/original/2019-02-02_18-41-12.png?1549100508" class="editor-image img-responsive" data-smartkarma-image-id="77724"></figure><div class="content-caption">Source: Japan Analytics</div>TORAKU @110 - The Toraku advance-decline indicator has continued to recover and is within ten points of the overbought zone, which has only been breached once since the market peak of January 2018. This signal is 'amber' and could be 'red' by the end of next week. <div class="content-highlight">
OUTLOOK &amp; RECOMMENDATIONS
<ul>
<li>We continue to recommend an underweight position in Japan in global portfolios.</li>
<li>The equity market decline at the end of last year was well in advance of the underlying trends in the economy and corporate profits; the recent 10% rally has corrected that imbalance. Nevertheless, the global cycle has turned down sharply, and many economies will be in a recession by the end of this quarter. We expect Japanese corporate earnings to follow suit.  </li>
<li>Although some of the coming decline in aggregate earnings has been well-discounted, our Results &amp; Revision Score has yet to turn negative. Accordingly, we expect the market to retest the December 2018 low, probably in May when the FY2020 forecasts are announced and our score starts 'seeing red'.</li>
<li>In the near term and despite the rally in the more cyclical sectors, we continue to favour undervalued domestically-orientated companies in the Information Technology, Internet, Media, and Telecommunications sectors. We would avoid or short Banks and Non-Bank Finance.</li>
</ul>
</div>In the DETAIL section below, we will review Sector performance over the last two weeks, and, in addition to our regular roundup of results, revisions and stock performance including brief comments on <a href="https://www.smartkarma.com/entities/3700" target="_blank" data-smartkarma-citation="entities:3700:1">Anritsu (6754 JP)</a>, <a href="https://www.smartkarma.com/entities/12001" target="_blank" data-smartkarma-citation="entities:12001:1">Alps Alpine (6770 JP)</a>, <a href="https://www.smartkarma.com/entities/24540" target="_blank" data-smartkarma-citation="entities:24540:1">SanBio (4592 JP)</a>, <a href="https://www.smartkarma.com/entities/454" target="_blank" data-smartkarma-citation="entities:454:1">Lixil (5938 JP)</a> (yes, again), <a href="https://www.smartkarma.com/entities/752" target="_blank" data-smartkarma-citation="entities:752:1">Fanuc (6954 JP)</a>, <a href="https://www.smartkarma.com/entities/219" target="_blank" data-smartkarma-citation="entities:219:1">Mizuho Financial Group (8411 JP)</a> , and <a href="https://www.smartkarma.com/entities/8197" target="_blank" data-smartkarma-citation="entities:8197:1">Cyberagent (4751 JP)</a>.

Source: Japan Analytics
Note: The Results &amp; Revision Score is the average of our Results Score and Forecasts/Revision Score and is updated daily for each company and then cap-weighted-aggregated into Peer Groups, Sectors and the Market Composite. Both scores have a maximum of +30 and a minimum of -30 for each period. The Results Score is calculated quarterly, using the most recent eight quarters of company data for revenues, operating income and operating margin and measures the rate, degree and consistency of change for each metric. The Forecast/Revision Score is based on Annual and Interim period company forecasts and compares changes from previous forecasts as well as against the trailing twelve-month or previous first-half results, with annual forecasts being double-weighted.DRIP, DRIP, DRIP - We 'lead' this fortnight's update with our All-Market Composite Results &amp; Revision Score. Calculated daily, the score is a 'real-time' measure of the state of, and the outlook for, listed Japanese corporations. As the scoring methodology includes earnings momentum 'factors', the data series can be a useful leading indicator of forward earnings. The correlation with the market over the last four years is 0.578, with the indicator leading more often than lagging.   Since peaking on 16th November 2017, the Results &amp; Revisions Score has fallen by 62% and has now returned to the level of May 2017. In the last ten years, the score has only been lower than at present one-third of the time - mostly during the fiscal year ended March 2017 when the total market value averaged ¥550t, close to the December 2018 low. If we are to repeat the relatively-mild cyclical downturn of 2016, the Results &amp; Revision Score will turn negative in May of this year, and the 25th December 2018 low will be retested.
Source: Japan Analytics
PAST THE PEAK - Our earnings indicator peaked 14 months ago, two months ahead of the market's high point on 26th January 2018. It now appears that aggregate reported earnings, as well as aggregate company forecasts for the current year, are now turning decisively lower after nine quarters of uninterrupted growth. Forecast Net Income for the current year is now 7% below the high point in trailing-twelve-month (TTM) Net Income from this cycle, which was reached two months ago. Operating Income is, as usual, 'lagging' and forecasts are still marginally ahead of TTM. The TTM all-market price-earnings ratio reached 11.5 times on Christmas Day, which will prove to be the cycle low point. We expect the return to median levels, to be achieved more through lower 'E' as opposed to a higher 'P'.  Mr Market is currently implying that Japanese corporate profits are due to fall by 23% on average from the cycle peak, or by 30% if we are to revisit the December low-point. Source: Japan AnalyticsTHE FIRST CUT - 23% of listed companies reported their most recent quarterly earnings results in the last two weeks. For these companies, TTM revenues grew by 5.1% year-on-year, but only by 0.5% quarter-on-quarter, the lowest qoq growth rate in over a year. TTM Operating Income is now 0.8% lower than the TTM total of one year ago and declined by 4.4% qoq. Operating margins fell by 49bps year-on-year.  Current forecasts for this group of companies imply 3.1% yoy top line growth, but only 0.3% compared to the quarter just declared. For Operating Income, the rates are -2.0% and 0.6%, reflecting the normal TTM-to-forecast 'lag'. Corporate Japan's profits are now rolling over and will be in a 'recession' by the fiscal year-end.  Source: Japan AnalyticsINTERREGNUM - Our bear market rally has paused to look at and digest the earnings-announcement news flow and will likely be trendless for the next few weeks as 'good' reactions offset 'bad'. In due course, we expect the preponderance of negative momentum to tip the scales.Source: Japan AnalyticsTORAKU @110 - The Toraku advance-decline indicator has continued to recover and is within ten points of the overbought zone, which has only been breached once since the market peak of January 2018. This signal is 'amber' and could be 'red' by the end of next week. 
OUTLOOK &amp; RECOMMENDATIONS

We continue to recommend an underweight position in Japan in global portfolios.
The equity market decline at the end of last year was well in advance of the underlying trends in the economy and corporate profits; the recent 10% rally has corrected that imbalance. Nevertheless, the global cycle has turned down sharply, and many economies will be in a recession by the end of this quarter. We expect Japanese corporate earnings to follow suit.  
Although some of the coming decline in aggregate earnings has been well-discounted, our Results &amp; Revision Score has yet to turn negative. Accordingly, we expect the market to retest the December 2018 low, probably in May when the FY2020 forecasts are announced and our score starts 'seeing red'.
In the near term and despite the rally in the more cyclical sectors, we continue to favour undervalued domestically-orientated companies in the Information Technology, Internet, Media, and Telecommunications sectors. We would avoid or short Banks and Non-Bank Finance.

In the DETAIL section below, we will review Sector performance over the last two weeks, and, in addition to our regular roundup of results, revisions and stock performance including brief comments on Anritsu (6754 JP), Alps Alpine (6770 JP), SanBio (4592 JP), Lixil (5938 JP) (yes, again), Fanuc (6954 JP), Mizuho Financial Group (8411 JP) , and Cyberagent (4751 JP).

Japan Fortnightly Update: Drip, Drip, Drip...

Event-Driven

On 26 October <a href="https://www.smartkarma.com/entities/7797" target="_blank" data-smartkarma-citation="entities:7797:1">Hitachi Ltd (6501 JP)</a> and  <a href="https://www.smartkarma.com/entities/21451" target="_blank" data-smartkarma-citation="entities:21451:1">Faurecia (EO FP)</a><a href="https://www.hitachi.com/New/cnews/month/2018/10/f_181026a.pdf" target="_blank">announced</a> that Faurecia would take over Hitachi car audio and infotainment equipment subsidiary <a href="https://www.smartkarma.com/entities/7888" target="_blank" data-smartkarma-citation="entities:7888:1">Clarion Co Ltd (6796 JP)</a> in a tender offer to be launched 3+ months hence. This was discussed in <a href="https://www.smartkarma.com/insights/faurecia-to-buy-clarion-at-2500-share" target="_blank" data-smartkarma-citation="insights:25382">Faurecia to Buy Clarion at ¥2500/Share</a>. At the time I had looked at the situation and the question about whether the price was fair and concluded that yes it was, and investors should take the money and run. The investors for whom the deal was most important on a forward-looking basis the day after that announcement were not Clarion investors but investors in Alpine (6816 JP). At that time, there was a question as to whether investors would look at the 10+x EV/EBITDA multiple being paid for Clarion against a multiple in the 2x EV/EBITDA range after cash and other financial assets were  accounted for to be paid for Alpine and suggest that Alpine management and directors had not done a good enough job getting an appropriate valuation (they did not). In addition, the buyer proposed a 5.7x multiple on a post-synergies basis 18-24 months out was a reasonable level to buy a company. I did not disagree, but that made Alpine investors' submission to <a href="https://www.smartkarma.com/entities/12001" target="_blank" data-smartkarma-citation="entities:12001:1">Alps Electric (6770 JP)</a> later in 2018 all the more disappointing. <h2>The New News</h2>As noted in the original announcement, Faurecia planned to commence their Tender Offer for Clarion shares in January 2019 and the Tender Offer would run for 20 days. Clarion today announced a <a href="https://www.clarion.com/jp/ja/pdf/190129_02.pdf" target="_blank">forecast revision</a> for the fiscal year to 31 March 2019 which involves a shortfall in revenue of 9.1%, a 16.7% drop in forecast Operating Profit, and a drop in Net Profit from ¥1.7 billion to a loss of ¥500 million (a ¥2.2bn swing), but...In a development which will cause Clarion investors to breathe a sigh of relief, Faurecia also announced will go through with the deal with no changes (other than to extend the Tender Offer to 21 business days).

On 26 October Hitachi Ltd (6501 JP) and  Faurecia (EO FP)announced that Faurecia would take over Hitachi car audio and infotainment equipment subsidiary Clarion Co Ltd (6796 JP) in a tender offer to be launched 3+ months hence. This was discussed in Faurecia to Buy Clarion at ¥2500/Share. At the time I had looked at the situation and the question about whether the price was fair and concluded that yes it was, and investors should take the money and run. The investors for whom the deal was most important on a forward-looking basis the day after that announcement were not Clarion investors but investors in Alpine (6816 JP). At that time, there was a question as to whether investors would look at the 10+x EV/EBITDA multiple being paid for Clarion against a multiple in the 2x EV/EBITDA range after cash and other financial assets were  accounted for to be paid for Alpine and suggest that Alpine management and directors had not done a good enough job getting an appropriate valuation (they did not). In addition, the buyer proposed a 5.7x multiple on a post-synergies basis 18-24 months out was a reasonable level to buy a company. I did not disagree, but that made Alpine investors' submission to Alps Electric (6770 JP) later in 2018 all the more disappointing. The New NewsAs noted in the original announcement, Faurecia planned to commence their Tender Offer for Clarion shares in January 2019 and the Tender Offer would run for 20 days. Clarion today announced a forecast revision for the fiscal year to 31 March 2019 which involves a shortfall in revenue of 9.1%, a 16.7% drop in forecast Operating Profit, and a drop in Net Profit from ¥1.7 billion to a loss of ¥500 million (a ¥2.2bn swing), but...In a development which will cause Clarion investors to breathe a sigh of relief, Faurecia also announced will go through with the deal with no changes (other than to extend the Tender Offer to 21 business days). 

Faurecia Launches Tender Offer for Clarion

Japan

Alps Alpine Co., Ltd. manufactures and markets electronic parts used for car electronics, computer peripheral equipment, and communications and broadcasting related equipment. The Company's products include printers, switches, ceramic trimmer capacitors, sensors, transceiver units for cellular phones, drives, and magnetic heads. Alps Alpine also operates logistics businesses.

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Alps Alpine (6770 JP)

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Alps Alpine Buyback Proceeding Apace

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Faurecia Launches Tender Offer for Clarion

On 26 October Hitachi Ltd (6501 JP) and Faurecia (EO FP)announced that Faurecia would take over Hitachi car audio and infotainment equipment...

Travis Lundy

🇯🇵 Japan • Winter Large Cap Results & Revision Scores - Contrarian Buys & Sells/Peak & Ex-Growth