Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>Late Friday, NHK carried a <a href="https://www3.nhk.or.jp/news/html/20200918/k10012624861000.html" target="_blank" rel="noopener">story</a> saying that <a href="https://www.smartkarma.com/entities/dcm-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:13042:1" rel="noopener">Dcm Holdings (3050 JP)</a> would launch a Tender Offer and as a result would own a 50.1% stake in <a href="https://www.smartkarma.com/entities/shimachu-co-ltd" target="_blank" data-smartkarma-citation="entities:5235:1" rel="noopener">Shimachu Co Ltd (8184 JP)</a> next month. An hour and 15mins later the Nikkei came out with a <a href="https://www.nikkei.com/article/DGXMZO64055880Y0A910C2TJC000/" target="_blank" rel="noopener">story</a> saying DCM was looking to do a TOB on Shimachu, later saying that they were in the final stages of decision. Both companies released press releases to the Exchange (<a href="https://ssl4.eir-parts.net/doc/8184/tdnet/1884205/00.pdf" target="_blank" rel="noopener">Shimachu</a>, <a href="https://ssl4.eir-parts.net/doc/3050/tdnet/1884206/00.pdf" target="_blank" rel="noopener">DCM</a>) saying that while their company was talking with others, including the other named, in order to improve their growth strategy, nothing had been decided.</p><p><em>Also on Friday, DCM released a <a href="https://ssl4.eir-parts.net/doc/3050/tdnet/1884067/00.pdf" target="_blank" rel="noopener">forecast upgrade</a> to their H1 earnings (H1 ended 31 Aug), with revenues up 10.4% vs forecast at ¥252.9bn, OP +68.9% vs plan at ¥22.3bn, and net +75.6% at ¥15.1bn. H2 forecasts were left completely unchanged, as if all the gains made in the first half evaporated August 31 and everything goes back to the previous plan. </em></p><p>DCM Holdings was formed in 2006 when the home center chains of Homac Corp., based in Sapporo, Kahma Co. in Aichi Prefecture, and Daiki Co. based in Matsuyama, Ehime Prefecture decided to form a holding company. Since then DCM has absorbed other brands such as Sanwa (in Aomori and northern Japan) in 2015, and Kuroganeya (in Yamanashi) in 2016, and has a business and capital alliance with <a href="https://www.smartkarma.com/entities/keiyo-co-ltd" target="_blank" data-smartkarma-citation="entities:14415:1" rel="noopener">Keiyo Co Ltd (8168 JP)</a> in Chiba. The five subsidiaries are currently fully separate, but the plan (as of a board meeting in December 2019) is to integrate all five subsidiaries into a single company by end-March 2021. All told, DCM operates 670+ stores nationwide (37 prefectures).</p><p>Shimachu has its roots as a furniture maker in Saitama Prefecture just north of Tokyo. Most stores are now in Saitama, non-central Tokyo, and Kanagawa, with a few in Chiba and a few stores in Kansai. It runs both furniture stores which resemble slightly homier versions of IKEA and also home centers under a variety of brands (they also have a pet supplies chain). Their two basic "brands" of shops called Shimachu and Home's.</p><p>This will build scale, and it is the kind of thing which leads to a merger in later years. That scale and consolidation is likely to continue because the sector is low-growth at best, and if there is growth it is probably in Tokyo. The largest two players currently are privately-held Cainz (which took over the top spot last year, for the first time) and DCM (formerly the long-time number one) which each hold about 10-11% of industry revenue, and neither see revenues dominated by a Tokyo metro area presence. </p><p>Even before the onset of COVID-19, Japanese homeowners had started spending more time and money upgrading existing dwellings and furnishings in a quality-of-life trade, reducing the turnover of home rebuilding for a better quality home life in existing premises. Since the onset of COVID-19 and more WFH, there has been more emphasis on making the living/working space more comfortable and homecenters and <em>especially</em> furnishings stores have done well. The recent purchase of <a href="https://www.smartkarma.com/entities/lixil-viva" target="_blank" data-smartkarma-citation="entities:24060:1" rel="noopener">LIXIL VIVA (3564 JP)</a> by <a href="https://www.smartkarma.com/entities/arcland-sakamoto-co-ltd" target="_blank" data-smartkarma-citation="entities:10395:1" rel="noopener">Arcland Sakamoto (9842 JP)</a> (see <a href="https://www.smartkarma.com/insights/lixil-viva-3564-jp-takeout-tender-offer" target="_blank" data-smartkarma-citation="insights:40178" rel="noopener">Lixil Viva (3564 JP) Takeout Tender Offer</a>) is but one example (and as noted in the insight, Lixil Viva is Tokyo-dominant in its revenue mix, Arcland runs the <em>Musashi</em> chain in Niigata).  This new deal is not surprising. The target is an "easy" one as it is cash-rich and not overly expensive. It also has some noisy shareholders on the register so getting something done earlier rather than later probably suits Shimachu too.</p><p>We have no other details about the deal (i.e. no noise about price) yet. This announcement may have "leaked" in a way that is unwelcome, though we may have news by the time trading starts on Wednesday. DCM is scheduled to report H1 results on 29 Sep. Shimachu is scheduled to report full-year earnings on 9 October. </p><p>As a trade, it certainly merits a look. </p>

Late Friday, NHK carried a story saying that Dcm Holdings (3050 JP) would launch a Tender Offer and as a result would own a 50.1% stake in Shimachu Co Ltd (8184 JP) next month. An hour and 15mins later the Nikkei came out with a story saying DCM was looking to do a TOB on Shimachu, later saying that they were in the final stages of decision. Both companies released press releases to the Exchange (Shimachu, DCM) saying that while their company was talking with others, including the other named, in order to improve their growth strategy, nothing had been decided.Also on Friday, DCM released a forecast upgrade to their H1 earnings (H1 ended 31 Aug), with revenues up 10.4% vs forecast at ¥252.9bn, OP +68.9% vs plan at ¥22.3bn, and net +75.6% at ¥15.1bn. H2 forecasts were left completely unchanged, as if all the gains made in the first half evaporated August 31 and everything goes back to the previous plan. DCM Holdings was formed in 2006 when the home center chains of Homac Corp., based in Sapporo, Kahma Co. in Aichi Prefecture, and Daiki Co. based in Matsuyama, Ehime Prefecture decided to form a holding company. Since then DCM has absorbed other brands such as Sanwa (in Aomori and northern Japan) in 2015, and Kuroganeya (in Yamanashi) in 2016, and has a business and capital alliance with Keiyo Co Ltd (8168 JP) in Chiba. The five subsidiaries are currently fully separate, but the plan (as of a board meeting in December 2019) is to integrate all five subsidiaries into a single company by end-March 2021. All told, DCM operates 670+ stores nationwide (37 prefectures).Shimachu has its roots as a furniture maker in Saitama Prefecture just north of Tokyo. Most stores are now in Saitama, non-central Tokyo, and Kanagawa, with a few in Chiba and a few stores in Kansai. It runs both furniture stores which resemble slightly homier versions of IKEA and also home centers under a variety of brands (they also have a pet supplies chain). Their two basic "brands" of shops called Shimachu and Home's.This will build scale, and it is the kind of thing which leads to a merger in later years. That scale and consolidation is likely to continue because the sector is low-growth at best, and if there is growth it is probably in Tokyo. The largest two players currently are privately-held Cainz (which took over the top spot last year, for the first time) and DCM (formerly the long-time number one) which each hold about 10-11% of industry revenue, and neither see revenues dominated by a Tokyo metro area presence. Even before the onset of COVID-19, Japanese homeowners had started spending more time and money upgrading existing dwellings and furnishings in a quality-of-life trade, reducing the turnover of home rebuilding for a better quality home life in existing premises. Since the onset of COVID-19 and more WFH, there has been more emphasis on making the living/working space more comfortable and homecenters and especially furnishings stores have done well. The recent purchase of LIXIL VIVA (3564 JP) by Arcland Sakamoto (9842 JP) (see Lixil Viva (3564 JP) Takeout Tender Offer) is but one example (and as noted in the insight, Lixil Viva is Tokyo-dominant in its revenue mix, Arcland runs the Musashi chain in Niigata).  This new deal is not surprising. The target is an "easy" one as it is cash-rich and not overly expensive. It also has some noisy shareholders on the register so getting something done earlier rather than later probably suits Shimachu too.We have no other details about the deal (i.e. no noise about price) yet. This announcement may have "leaked" in a way that is unwelcome, though we may have news by the time trading starts on Wednesday. DCM is scheduled to report H1 results on 29 Sep. Shimachu is scheduled to report full-year earnings on 9 October. As a trade, it certainly merits a look. 

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

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.

Thematic (Sector/Industry)

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/015/original/2020-09-19_10-11-42.png?1600477913" class="editor-image img-responsive" data-smartkarma-image-id="160015"></figure><p><strong>NEW 2-YEAR $ HIGH?</strong> - With the Yen on a tear against the US Dollar and the TOPIX index focused more on the inauguration of the Suga-era rather than NASDAQ, TOPIX in US dollars terms is within 1.2% of a new two-year high and is 36% above the March low. A supporting factor has been the Bank of Japan's ETF purchase program which now appears to be anticipating currency-induced declines, rather than responding to actual decreases in TOPIX. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/020/original/2020-09-19_10-48-20.png?1600480112" class="editor-image img-responsive" data-smartkarma-image-id="160020"></figure><p><strong>BULL v. BEARS</strong> - The technical market bulls will point to the 50-day moving average now being above the 200-day average. Bears will caution that we are the upper end of both the Toraku and Absolute Breadth ranges and are now 'rolling over'. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/021/original/2020-09-19_11-10-05.png?1600481514" class="editor-image img-responsive" data-smartkarma-image-id="160021"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/022/original/2020-09-19_11-13-43.png?1600481635" class="editor-image img-responsive" data-smartkarma-image-id="160022"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/023/original/2020-09-19_11-14-25.png?1600481694" class="editor-image img-responsive" data-smartkarma-image-id="160023"></figure><p><strong>AN SME MARKET</strong> - As we noted last week, the ratio between TOPIX Small and TOPIX equalled its twenty-month high on Friday and could well reach parity if the Yen continues to appreciate. Indeed, the Value-Traded ratio is firmly in favour of a domestic small-cap-led market. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/025/original/2020-09-19_11-20-35.png?1600482049" class="editor-image img-responsive" data-smartkarma-image-id="160025"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/026/original/2020-09-19_11-24-09.png?1600482261" class="editor-image img-responsive" data-smartkarma-image-id="160026"></figure><p><strong>AGGREGATE RESULTS &amp; REVISION SCORES YET TO BOTTOM</strong> - On several days last week, positive scores outweighed negative ones, and on Thursday, only one company has scored negatively. Nevertheless, the trend in the cap-weighted aggregate Scores has yet to see any recovery in earnings momentum.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/040/original/2020-09-19_12-34-38.png?1600486493" class="editor-image img-responsive" data-smartkarma-image-id="160040"></figure><p><strong>33x FY2021</strong> - The gap between forecast and trailing aggregate operating income is now ¥6.5 trillion and ¥3.7 trillion for net income. The forward earnings multiple is 32.6 times close to three times 2018's trailing low.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/041/original/2020-09-19_13-55-21.png?1600491337" class="editor-image img-responsive" data-smartkarma-image-id="160041"></figure><hr><p style="text-align: center;"><strong>• BEST &amp; WORST RESULTS &amp; REViSIONS •</strong></p><p style="text-align: left;">The 'best' announcements on Friday were from home centre <a href="https://www.smartkarma.com/entities/dcm-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:13042:1" rel="noopener">DCM (3050 JP)</a> and, surprisingly, <a href="https://www.smartkarma.com/entities/h-u-group-holdings-inc" target="_blank" data-smartkarma-citation="entities:16580:1" rel="noopener">H.U. Group (4544 JP)</a> (formerly Miraca). </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/007/original/2020-09-19_09-47-20.png?1600476454" class="editor-image img-responsive" data-smartkarma-image-id="160007"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/009/original/2020-09-19_09-55-21.png?1600476933" class="editor-image img-responsive" data-smartkarma-image-id="160009"></figure><div class="content-caption">Source for all charts &amp; tables: Japan Analytics</div><p>Friday's 'worst' were from <a href="https://www.smartkarma.com/entities/asahi-diamond-industrial-co" target="_blank" data-smartkarma-citation="entities:9032:1" rel="noopener">Asahi Diamond (6140 JP)</a> and Albert (3906 JP) </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/010/original/2020-09-19_09-58-46.png?1600477139" class="editor-image img-responsive" data-smartkarma-image-id="160010"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/012/original/2020-09-19_10-00-34.png?1600477245" class="editor-image img-responsive" data-smartkarma-image-id="160012"></figure><hr><p style="text-align: center;"><strong>DAILY STATS</strong></p><hr><div></div><div><p><strong>Both of Fridays' results scored negatively with Internet marketing company Albert (3906 JP) being the 'worst' - as above. Forecasts and Revisions reverted to bein net negative again.</strong></p></div><hr><div><p style="text-align: center;"><strong> 17 Annual • 13 Interim Forecasts/Revisions</strong></p></div><div><ul style="list-style-type: disc;">
<li>Annual Forecast/Revision Score: 24% Positive / 16% Neutral / 65% Negative</li>
<li>Interim Forecast/Revision Score Change: 31% Positive / 0% Neutral / 69% Negative</li>
<li>Average Forecast/Revision Score Change: -6.4 points</li>
</ul></div>

NEW 2-YEAR $ HIGH? - With the Yen on a tear against the US Dollar and the TOPIX index focused more on the inauguration of the Suga-era rather than NASDAQ, TOPIX in US dollars terms is within 1.2% of a new two-year high and is 36% above the March low. A supporting factor has been the Bank of Japan's ETF purchase program which now appears to be anticipating currency-induced declines, rather than responding to actual decreases in TOPIX. BULL v. BEARS - The technical market bulls will point to the 50-day moving average now being above the 200-day average. Bears will caution that we are the upper end of both the Toraku and Absolute Breadth ranges and are now 'rolling over'. AN SME MARKET - As we noted last week, the ratio between TOPIX Small and TOPIX equalled its twenty-month high on Friday and could well reach parity if the Yen continues to appreciate. Indeed, the Value-Traded ratio is firmly in favour of a domestic small-cap-led market. AGGREGATE RESULTS &amp; REVISION SCORES YET TO BOTTOM - On several days last week, positive scores outweighed negative ones, and on Thursday, only one company has scored negatively. Nevertheless, the trend in the cap-weighted aggregate Scores has yet to see any recovery in earnings momentum.33x FY2021 - The gap between forecast and trailing aggregate operating income is now ¥6.5 trillion and ¥3.7 trillion for net income. The forward earnings multiple is 32.6 times close to three times 2018's trailing low.• BEST &amp; WORST RESULTS &amp; REViSIONS •The 'best' announcements on Friday were from home centre DCM (3050 JP) and, surprisingly, H.U. Group (4544 JP) (formerly Miraca). Source for all charts &amp; tables: Japan AnalyticsFriday's 'worst' were from Asahi Diamond (6140 JP) and Albert (3906 JP) DAILY STATSBoth of Fridays' results scored negatively with Internet marketing company Albert (3906 JP) being the 'worst' - as above. Forecasts and Revisions reverted to bein net negative again. 17 Annual • 13 Interim Forecasts/Revisions
Annual Forecast/Revision Score: 24% Positive / 16% Neutral / 65% Negative
Interim Forecast/Revision Score Change: 31% Positive / 0% Neutral / 69% Negative
Average Forecast/Revision Score Change: -6.4 points


🇯🇵 JAPAN • Market Update & Results & Revisions 09/​​​​​​​​​​18 - DCM, H.U., Strike

<p style="text-align: center;"><strong>• BEST &amp; WORST •</strong></p><p style="text-align: left;">Our 'best' and 'worst' pairing from yesterday's announcements is food and drink retailer <a href="https://www.smartkarma.com/entities/life-corp" target="_blank" data-smartkarma-citation="entities:1743:1" rel="noopener">Life (8194 JP)</a> and parking lot operator <a href="https://www.smartkarma.com/entities/park24-co-ltd" target="_blank" data-smartkarma-citation="entities:5622:1" rel="noopener">Park24 (4666 JP)</a>. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/159/223/original/2020-09-16_04-25-58.png?1600198055" class="editor-image img-responsive" data-smartkarma-image-id="159223"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/159/224/original/2020-09-16_04-31-11.png?1600198284" class="editor-image img-responsive" data-smartkarma-image-id="159224"></figure><div class="content-caption">Source for all charts &amp; tables: Japan Analytics</div><hr><div><p style="text-align: center;"><strong>DAILY STATS</strong></p></div><hr><div><p><strong>PERCENTAGES</strong> -<strong>57</strong>% of quarterly results, <strong>54%</strong> of annual forecasts/revisions and <strong>44%</strong> of interim forecasts have negative Score<strong>s. 57</strong>% of companies reporting lost money for the quarter. </p></div><div><p style="text-align: center;"><strong>7 Quarterly Results</strong></p></div><div><ul style="list-style-type: disc;">
<li>
<strong>Results Score</strong>: 29% Positive / 14% Neutral / 57% Negative</li>
<li>
<strong>Average Results Score Change:</strong> -1.7 points</li>
<li>
<strong>Average % Change in Revenue:</strong> +6.6% Quarter YoY / +12.5% Rolling TTM YoY </li>
<li>
<strong>Average Operating Profit Margin Change:</strong> -2.6ppt</li>
<li>
<strong>Percentage Making Quarterly Losses:</strong> 57%</li>
</ul></div><hr><div><p style="text-align: center;"><strong>13 Annual • 9 Interim Forecasts/Revisions</strong></p></div><div><ul style="list-style-type: disc;">
<li>
<strong>Annual Forecast/Revision Score:</strong> 46% Positive / 0% Neutral / 54% Negative</li>
<li>
<strong>Interim Forecast/Revision Score Change</strong>: 56% Positive / 0% Neutral / 44% Negative</li>
<li>
<strong>Average Forecast/Revision Score Change:</strong> +0.5 points</li>
</ul></div>

• BEST &amp; WORST •Our 'best' and 'worst' pairing from yesterday's announcements is food and drink retailer Life (8194 JP) and parking lot operator Park24 (4666 JP). Source for all charts &amp; tables: Japan AnalyticsDAILY STATSPERCENTAGES -57% of quarterly results, 54% of annual forecasts/revisions and 44% of interim forecasts have negative Scores. 57% of companies reporting lost money for the quarter. 7 Quarterly Results

Results Score: 29% Positive / 14% Neutral / 57% Negative

Average Results Score Change: -1.7 points

Average % Change in Revenue: +6.6% Quarter YoY / +12.5% Rolling TTM YoY 

Average Operating Profit Margin Change: -2.6ppt

Percentage Making Quarterly Losses: 57%
13 Annual • 9 Interim Forecasts/Revisions

Annual Forecast/Revision Score: 46% Positive / 0% Neutral / 54% Negative

Interim Forecast/Revision Score Change: 56% Positive / 0% Neutral / 44% Negative

Average Forecast/Revision Score Change: +0.5 points


🇯🇵 JAPAN • Results & Revisions 09/​​​​​​​15  -Park[24]ing Woes, Life in Life | Keiyo▲, Palma▼

<p style="text-align: center;"><strong>• BEST &amp; WORST •</strong></p><p style="text-align: left;">Our 'best' and 'worst' pairing from Monday's announcements is 'social e-commerce' business <a href="https://www.smartkarma.com/entities/enigmo-inc" target="_blank" data-smartkarma-citation="entities:7036:1" rel="noopener">Enigmo (3665 JP)</a> and tech and auto materials company <a href="https://www.smartkarma.com/entities/jsr-corp" target="_blank" data-smartkarma-citation="entities:17620:1" rel="noopener">JSR (4185 JP)</a> which has seen a 35-40% slump in auto-related demand. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/159/000/original/2020-09-15_05-00-30.png?1600113643" class="editor-image img-responsive" data-smartkarma-image-id="159000"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/159/001/original/2020-09-15_05-08-17.png?1600114115" class="editor-image img-responsive" data-smartkarma-image-id="159001"></figure><div class="content-caption">Source for all charts &amp; tables: Japan Analytics</div><hr><p style="text-align: center;"><strong>DAILY STATS</strong></p><hr><p><strong>IMPROVING</strong> -37% of quarterly results, 61% of annual forecasts/revisions and 40% of interim forecasts have negative Scores. Only 10% of companies reporting lost money for the quarter. Most of the Results metrics were positive for the first time in many months; revisions are still trending negatively.</p><p style="text-align: center;"><strong>41 Quarterly Results</strong></p><div><ul style="list-style-type: disc;">
<li>
<strong>Results Score:</strong> 44% Positive / 20% Neutral / 37% Negative</li>
<li>
<strong>Average Results Score Change: </strong>+0.9 points</li>
<li>
<strong>Average % Change in Revenue:</strong> +5.8% Quarter YoY / +5.6% Rolling TTM YoY </li>
<li>
<strong>Average Operating Profit Margin Change:</strong> 1.5ppt</li>
<li>
<strong>Percentage Making Quarterly Losses:</strong> 10%</li>
</ul></div><hr><div><p>23 Annual • 10 Interim Forecasts/Revisions</p></div><div><ul style="list-style-type: disc;">
<li>Annual Forecast/Revision Score: 22% Positive / 17% Neutral / 61% Negative</li>
<li>Interim Forecast/Revision Score Change: 50% Positive / 10% Neutral / 40% Negative</li>
<li>Average Forecast/Revision Score Change: -3.5 points</li>
</ul></div>

• BEST &amp; WORST •Our 'best' and 'worst' pairing from Monday's announcements is 'social e-commerce' business Enigmo (3665 JP) and tech and auto materials company JSR (4185 JP) which has seen a 35-40% slump in auto-related demand. Source for all charts &amp; tables: Japan AnalyticsDAILY STATSIMPROVING -37% of quarterly results, 61% of annual forecasts/revisions and 40% of interim forecasts have negative Scores. Only 10% of companies reporting lost money for the quarter. Most of the Results metrics were positive for the first time in many months; revisions are still trending negatively.41 Quarterly Results

Results Score: 44% Positive / 20% Neutral / 37% Negative

Average Results Score Change: +0.9 points

Average % Change in Revenue: +5.8% Quarter YoY / +5.6% Rolling TTM YoY 

Average Operating Profit Margin Change: 1.5ppt

Percentage Making Quarterly Losses: 10%
23 Annual • 10 Interim Forecasts/Revisions
Annual Forecast/Revision Score: 22% Positive / 17% Neutral / 61% Negative
Interim Forecast/Revision Score Change: 50% Positive / 10% Neutral / 40% Negative
Average Forecast/Revision Score Change: -3.5 points


🇯🇵 JAPAN • Results & Revisions 09/​​​​​​14 - Tsuruha, Kura Sushi, Arcland Sakamoto, JSR

<p>The housewares company <a href="https://www.smartkarma.com/entities/lixil-group-corp" target="_blank" data-smartkarma-citation="entities:454:1" rel="noopener">Lixil Group (5938 JP)</a> was formed as we know it through the merger of Tostem (which made doors, windows, curtain wall (for high rises), sash, and shutters) with INAX which made porcelain and FRP toilets and sinks and plumbing fixtures) in 2001. That was renamed JS Group in 2004 and from then until just after the GFC JFC continued with bolt-on acquisitions (American Standard Asia Pacific (porcelain toilets), Sunwave (stainless steel sinks, etc for pro use), Shin Nikkei, Toyo Exterior, etc) then in 2011 merged them all together to form LIXIL Group. </p><p><a href="https://www.smartkarma.com/entities/lixil-viva" target="_blank" data-smartkarma-citation="entities:24060:1" rel="noopener">LIXIL VIVA (3564 JP)</a> started its life as a subsidiary of Toyo Sash which launched what in Japan is called a DIY store or a "home center" (something akin to a Home Depot), branded "Viva Home", in the late 1970s. It was early. In the 1980s it listed itself, and in the early 1990s, it rebranded itself Tostem Viva when Toyo Sash itself rebranded itself as Tostem. In 2001, it merged with Tostem and Inax to form Tostem Inax which, as above, became JS Group and then LIXIL Group. </p><p>LIXIL IPOed LIXIL VIVA in April 2017, and climbed until TOPIX inclusion week at the end of May 2017, and then the shares fell for five months, falling well below the IPO price (¥2050/share). The shares rallied into the end of the fiscal year, regaining the IPO price for several weeks before falling 45% to the ¥1200/share area in summer 2019. The goal had been for LIXIL Group to cut LIXIL VIVA loose, because it was deemed something of a conflict of interest to have a home furnishings company owning a low-priced retailer of both its items (which might put its stores in competition with its distributor network) and competitors' items, however the appetite for a large offering was never deemed right, and eventually a private sale was looked at. The search for a buyer started in earnest several months ago, with reports suggesting the field had been winnowed down to a half dozen by March when markets started getting hairy - split between strategics and financial buyers. </p><h2>The NEW News Today</h2><p>Today, <a href="https://www.smartkarma.com/entities/arcland-sakamoto-co-ltd" target="_blank" data-smartkarma-citation="entities:10395:1" rel="noopener">Arcland Sakamoto (9842 JP)</a>, <a href="https://www.smartkarma.com/entities/lixil-viva" target="_blank" data-smartkarma-citation="entities:24060:1" rel="noopener">LIXIL VIVA (3564 JP)</a>, and <a href="https://www.smartkarma.com/entities/lixil-group-corp" target="_blank" data-smartkarma-citation="entities:454:1" rel="noopener">Lixil Group (5938 JP)</a> announced a multi-leg agreement where Arcland Sakamoto would launch a Tender Offer to take over enough shares in LIXIL Viva so that after the Tender Offer, Arcland and LIXIL Group would own enough to squeeze out minorities. Then Arcland will inject some capital into LIXIL Viva, enabling it to buy back shares from LIXIL Group so that Arcland will be the sole owner.</p><p>There are a couple of specific reasons for doing it this way which only support an improved price for minorities, so the structure is not terribly objectionable, but the minimum threshold for tender success being only 12% out of the ~45% minority ownership is a part of Japanese tender offers on companies with large incumbent stake holdings which should be fixed at some point.</p><div class="content-remarks"><p>(hint: if you investors don't demand the change to better defend minorities, companies won't volunteer it on their own). </p></div><p>This sales process hasn't exactly been conducted in secret, but even then, the premium vs the last week and month is pretty miserly. One could imagine <em>some</em> people getting upset. It is not clear people <em>should</em> be upset. It was well-signalled, it's a tough business, an auction was conducted with multiple participants, and while LIXIL Viva may be the largest and best example of how to run this business, they are not cheap.</p><p><em>This should get done, but it may be interesting to watch. </em></p>

The housewares company Lixil Group (5938 JP) was formed as we know it through the merger of Tostem (which made doors, windows, curtain wall (for high rises), sash, and shutters) with INAX which made porcelain and FRP toilets and sinks and plumbing fixtures) in 2001. That was renamed JS Group in 2004 and from then until just after the GFC JFC continued with bolt-on acquisitions (American Standard Asia Pacific (porcelain toilets), Sunwave (stainless steel sinks, etc for pro use), Shin Nikkei, Toyo Exterior, etc) then in 2011 merged them all together to form LIXIL Group. LIXIL VIVA (3564 JP) started its life as a subsidiary of Toyo Sash which launched what in Japan is called a DIY store or a "home center" (something akin to a Home Depot), branded "Viva Home", in the late 1970s. It was early. In the 1980s it listed itself, and in the early 1990s, it rebranded itself Tostem Viva when Toyo Sash itself rebranded itself as Tostem. In 2001, it merged with Tostem and Inax to form Tostem Inax which, as above, became JS Group and then LIXIL Group. LIXIL IPOed LIXIL VIVA in April 2017, and climbed until TOPIX inclusion week at the end of May 2017, and then the shares fell for five months, falling well below the IPO price (¥2050/share). The shares rallied into the end of the fiscal year, regaining the IPO price for several weeks before falling 45% to the ¥1200/share area in summer 2019. The goal had been for LIXIL Group to cut LIXIL VIVA loose, because it was deemed something of a conflict of interest to have a home furnishings company owning a low-priced retailer of both its items (which might put its stores in competition with its distributor network) and competitors' items, however the appetite for a large offering was never deemed right, and eventually a private sale was looked at. The search for a buyer started in earnest several months ago, with reports suggesting the field had been winnowed down to a half dozen by March when markets started getting hairy - split between strategics and financial buyers. The NEW News TodayToday, Arcland Sakamoto (9842 JP), LIXIL VIVA (3564 JP), and Lixil Group (5938 JP) announced a multi-leg agreement where Arcland Sakamoto would launch a Tender Offer to take over enough shares in LIXIL Viva so that after the Tender Offer, Arcland and LIXIL Group would own enough to squeeze out minorities. Then Arcland will inject some capital into LIXIL Viva, enabling it to buy back shares from LIXIL Group so that Arcland will be the sole owner.There are a couple of specific reasons for doing it this way which only support an improved price for minorities, so the structure is not terribly objectionable, but the minimum threshold for tender success being only 12% out of the ~45% minority ownership is a part of Japanese tender offers on companies with large incumbent stake holdings which should be fixed at some point.(hint: if you investors don't demand the change to better defend minorities, companies won't volunteer it on their own). This sales process hasn't exactly been conducted in secret, but even then, the premium vs the last week and month is pretty miserly. One could imagine some people getting upset. It is not clear people should be upset. It was well-signalled, it's a tough business, an auction was conducted with multiple participants, and while LIXIL Viva may be the largest and best example of how to run this business, they are not cheap.This should get done, but it may be interesting to watch. 

Lixil Viva (3564 JP) Takeout Tender Offer

Japan

Arclands Corporation operates home centers. The Company mainly sells home improvement products, household utensils, car and leisure products, gardening supplies, and other products. Arclands also operates restaurants management, DIY(Do It Yourself) products sales, real estate development, and other businesses.

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Arclands Corporation (9842 JP)

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