Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Last night, Singapore-based fund Aslead Capital Pte announced that it would launch a Tender Offer on <a href="https://www.smartkarma.com/entities/fuji-kosan-company-ltd" target="_blank" data-smartkarma-citation="entities:17867:1" rel="noopener">Fuji Kosan Company (5009 JP)</a> to take at least a 40% stake and possibly full control after ownership and approaches did not lead to "satisfactory" measures to improve corporate value. 
The shareholder had been acquiring shares since last year. It first went above 5% in August 2020 and until yesterday had most recently reported a 14.83% stake on 4 February. 
The stock has an interesting set of investors, and was for many years in the early to mid-2010s a poster child for tiny cap deep value investment targets. 
As of the announcement, Aslead states that it owns 16.8% which means to get to 40.0%, it needs only 23.2% of shares out - of the 83.2% it does not own. 
The company has been building an 'interesting' set of shareholders and relationships. One activist sold last year to be replaced by another. There is someone infamous from the tabloids. This could be fun to watch. It will certainly trade through terms early. The question then is what next?
There is a behind-the-scenes link to the family office responsible for the single most fun <a href="https://www.smartkarma.com/messages/%20https:/y-n10.com/" target="_blank" rel="noopener">family office website</a> ever made (after you press enter, check on the left side to see the sound is on and if you need to read the text more smoothly switch from angled to vertical just above the sound on/off section).

Last night, Singapore-based fund Aslead Capital Pte announced that it would launch a Tender Offer on Fuji Kosan Company (5009 JP) to take at least a 40% stake and possibly full control after ownership and approaches did not lead to "satisfactory" measures to improve corporate value. 
The shareholder had been acquiring shares since last year. It first went above 5% in August 2020 and until yesterday had most recently reported a 14.83% stake on 4 February. 
The stock has an interesting set of investors, and was for many years in the early to mid-2010s a poster child for tiny cap deep value investment targets. 
As of the announcement, Aslead states that it owns 16.8% which means to get to 40.0%, it needs only 23.2% of shares out - of the 83.2% it does not own. 
The company has been building an 'interesting' set of shareholders and relationships. One activist sold last year to be replaced by another. There is someone infamous from the tabloids. This could be fun to watch. It will certainly trade through terms early. The question then is what next?
There is a behind-the-scenes link to the family office responsible for the single most fun family office website ever made (after you press enter, check on the left side to see the sound is on and if you need to read the text more smoothly switch from angled to vertical just above the sound on/off section). 

Aslead Capital Hostile Offer for Fuji Kosan (5009)

On 10 November I wrote that the Founder's son's MBO of <a href="https://www.smartkarma.com/entities/mystar-engineering-corp" target="_blank" data-smartkarma-citation="entities:14925:1" rel="noopener">Mystar Engineering (4695 JP)</a> was being done at the wrong price. <a href="https://www.smartkarma.com/insights/smallcap-mystar-engineering-4695-tender-offer-wrong-price" target="_blank" data-smartkarma-citation="insights:34322" rel="noopener">SmallCap Mystar Engineering (4695) Tender Offer  - WRONG PRICE</a>. The fact that the board, special committee, and independent advisors saw the original ¥940/share was in any way acceptable is a sign either that ALL of the advisors involved are financially illiterate (or corrupt), or that the parameters of their decision-making are inappropriate. I would not accuse any of them of corruption, which leaves financial illiteracy and a bad framework to blame.One of Mystar's major shareholders, <a href="https://www.smartkarma.com/entities/hikari-tsushin-inc" target="_blank" data-smartkarma-citation="entities:4909:1" rel="noopener">Hikari Tsushin (9435 JP)</a>, which had in August this year reached a 5% holding, felt the same, and raised its stake from less than 6% to almost 15% by the 19th of this month. This was discussed in <a href="https://www.smartkarma.com/insights/mystar-engineering-mbo-tob-looks-in-trouble" target="_blank" data-smartkarma-citation="insights:34787" rel="noopener">MyStar Engineering MBO/TOB Looks In Trouble</a>. Just two days later, ME Holdings - the entity Hirano-san is using to conduct his Tender Offer - <a href="https://www.mystar.co.jp/news/pdf/ir_20191128_01.pdf" target="_blank" rel="noopener">announced</a> it would raise its Tender Offer Price from ¥940/share to ¥1150/share. The company released a newly-amended <a href="https://www.mystar.co.jp/news/pdf/ir_20191128_02.pdf" target="_blank" rel="noopener">board resolution</a> of support to the Tender Offer which is almost painful to read in its boilerplatitude. And it gets us past the old 15-year closing high of ¥1146/share of 28 Feb 2018, which - to be as generously blunt as possible to Mr. Hirano - was the very least he should have done. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/108/393/original/Screenshot%202019-11-29%20at%209.52.18%20AM.png?1574992369" class="editor-image img-responsive" data-smartkarma-image-id="108393"></figure><div style="text-align: left;" class="content-caption">source: tradingview.com, Quiddity</div>It doesn't clear the 20-year high, which is a tad over ¥1400/share, or the 2-year high, which is ¥1500/share.Shares opened up this morning at ¥1155 and by lunch the shares are ¥1160 and the stock has traded 5% of shares out, and 11% of float and have not seen a price lower than ¥1155. There's a reason for that. More below the fold.

On 10 November I wrote that the Founder's son's MBO of Mystar Engineering (4695 JP) was being done at the wrong price. SmallCap Mystar Engineering (4695) Tender Offer  - WRONG PRICE. The fact that the board, special committee, and independent advisors saw the original ¥940/share was in any way acceptable is a sign either that ALL of the advisors involved are financially illiterate (or corrupt), or that the parameters of their decision-making are inappropriate. I would not accuse any of them of corruption, which leaves financial illiteracy and a bad framework to blame.One of Mystar's major shareholders, Hikari Tsushin (9435 JP), which had in August this year reached a 5% holding, felt the same, and raised its stake from less than 6% to almost 15% by the 19th of this month. This was discussed in MyStar Engineering MBO/TOB Looks In Trouble. Just two days later, ME Holdings - the entity Hirano-san is using to conduct his Tender Offer - announced it would raise its Tender Offer Price from ¥940/share to ¥1150/share. The company released a newly-amended board resolution of support to the Tender Offer which is almost painful to read in its boilerplatitude. And it gets us past the old 15-year closing high of ¥1146/share of 28 Feb 2018, which - to be as generously blunt as possible to Mr. Hirano - was the very least he should have done. source: tradingview.com, QuiddityIt doesn't clear the 20-year high, which is a tad over ¥1400/share, or the 2-year high, which is ¥1500/share.Shares opened up this morning at ¥1155 and by lunch the shares are ¥1160 and the stock has traded 5% of shares out, and 11% of float and have not seen a price lower than ¥1155. There's a reason for that. More below the fold.

Mystar Engineering (4695) TOB/MBO Price Bumped - STILL Not Enough

The title of my first piece on this situation was <a href="https://www.smartkarma.com/insights/smallcap-mystar-engineering-4695-tender-offer-wrong-price" target="_blank" data-smartkarma-citation="insights:34322" rel="noopener">SmallCap Mystar Engineering (4695) Tender Offer  - WRONG PRICE</a>. I said the situation looked vaguely Kosaido-ish and my conclusion stated "I expect there is a non-negligible possibility of pushback against the price."That pretty much says it all. The stock opened up above the ¥940 MBO Tender Offer Price on the first day of trading and it hasn't looked back. The stock has traded 3mm shares, which is just under 40% of the shares outstanding and none of that volume has traded at or below the Tender Offer terms.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/107/701/original/Screenshot%202019-11-25%20at%204.15.39%20PM.png?1574670153" class="editor-image img-responsive" data-smartkarma-image-id="107701"></figure><div style="text-align: left;" class="content-caption">source: tradingview.com, Quiddity</div>Importantly, one of the larger holders prior to the launch of the Tender Offer was <a href="https://www.smartkarma.com/entities/hikari-tsushin-inc" target="_blank" data-smartkarma-citation="entities:4909:1" rel="noopener">Hikari Tsushin (9435 JP)</a>. At March-end, they were the number 5 shareholder with 3.7%. By early August, they were at 5.02%.<div class="content-highlight">
Now they are at 13.52%, but it is "worse" than that.
The shares haven't traded at or below terms since the announcement. A large holder has increased its stake above terms every day from the 11th to the 18th - which is the latest date they would have incurred an obligation to amend their Large Shareholder Report (purchases made on the 19th would have to be reported tomorrow). 
Their 13.52% stake is actually more like 15.7% of voting rights and 19.4% of shares outside Hirano-san's ownership. 
I expect more noise. I expect the wannabe MBO-er to either have to raise their price, engage Hikari Tsushin, or walk away from a failed MBO Tender Offer. 
</div>There is a possibility that Hikari Tsushin would conduct a tender offer to block the Mystar MBO at the wrong price. That would leave the young Mr. Hirano to decide whether to substantially lift the price, or he could let it fail and everyone could sit down over a cup of tea and arrange a better outcome. Or Hikari Tsushin might not get that far. Either way it is looking like the Tender Offer as structured might not get over the hump. If you think the Tender Offer was too cheap, you can continue to own. If you think the price will plummet in case of a Tender Offer failure, you have more liquidity now than you have had for years and years. It would be pretty easy to get out of a decent sized block in the market. More discussion below the fold.

The title of my first piece on this situation was SmallCap Mystar Engineering (4695) Tender Offer  - WRONG PRICE. I said the situation looked vaguely Kosaido-ish and my conclusion stated "I expect there is a non-negligible possibility of pushback against the price."That pretty much says it all. The stock opened up above the ¥940 MBO Tender Offer Price on the first day of trading and it hasn't looked back. The stock has traded 3mm shares, which is just under 40% of the shares outstanding and none of that volume has traded at or below the Tender Offer terms.source: tradingview.com, QuiddityImportantly, one of the larger holders prior to the launch of the Tender Offer was Hikari Tsushin (9435 JP). At March-end, they were the number 5 shareholder with 3.7%. By early August, they were at 5.02%.
Now they are at 13.52%, but it is "worse" than that.
The shares haven't traded at or below terms since the announcement. A large holder has increased its stake above terms every day from the 11th to the 18th - which is the latest date they would have incurred an obligation to amend their Large Shareholder Report (purchases made on the 19th would have to be reported tomorrow). 
Their 13.52% stake is actually more like 15.7% of voting rights and 19.4% of shares outside Hirano-san's ownership. 
I expect more noise. I expect the wannabe MBO-er to either have to raise their price, engage Hikari Tsushin, or walk away from a failed MBO Tender Offer. 
There is a possibility that Hikari Tsushin would conduct a tender offer to block the Mystar MBO at the wrong price. That would leave the young Mr. Hirano to decide whether to substantially lift the price, or he could let it fail and everyone could sit down over a cup of tea and arrange a better outcome. Or Hikari Tsushin might not get that far. Either way it is looking like the Tender Offer as structured might not get over the hump. If you think the Tender Offer was too cheap, you can continue to own. If you think the price will plummet in case of a Tender Offer failure, you have more liquidity now than you have had for years and years. It would be pretty easy to get out of a decent sized block in the market. More discussion below the fold. 

MyStar Engineering MBO/TOB Looks In Trouble

'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

- MARKET COMPOSITE -<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/079/882/original/2019-02-24_11-07-12.png?1550974089" class="editor-image img-responsive" data-smartkarma-image-id="79882"></figure><div class="content-caption">Source: Japan Analytics</div>ALMOST THREE-MONTH HIGH RECOVERY - The bear market rally is now in its second stage, and the market composite is now 14% above the Christmas Day low. The 'market value'-based percentage above moving averages almost reached a new three-month on Thursday; the stock count version is lagging as usual.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/079/886/original/2019-02-24_11-32-45.png?1550975583" class="editor-image img-responsive" data-smartkarma-image-id="79886"></figure><div class="content-caption">Source: Japan Analytics</div>STILL SOME UPSIDE - Using the three-month rate of change in this indicator, we are a few weeks away from generating a short-term sell signal, the last such trigger having occurred on 25th October. <hr>- SECTORS - <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/079/887/original/2019-02-24_11-45-38.png?1550976349" class="editor-image img-responsive" data-smartkarma-image-id="79887"></figure><div style="text-align: left;" class="content-caption">
LEGEND: The 'sparklines' show the three-year trend in the weighted percentage above moving average relative to the Market Composite and the 'STDev' column is a measure of the variability of that relative measure. The table also provides averages for the breaks above and breaks below and the positive and negative crossovers.</div>SECTOR BREAKDOWN - The top six sectors remain domestic and defensive. REITs, Information Technology, Transporation and Utilities continue from our previous review with Restaurants and Healthcare replacing Media and Telecommunications. Equally predictable is the bottom half-dozen - Banks, Non-Bank Finance, Autos, and Metals remain from two weeks ago, with Construction and Retail replacing Chemicals and Other Materials. <hr>- COMPANIES -COMPANY MOVING AVERAGE OUTLIERS - As with the Market Composite and Sectors, the Moving Average Outlier indicator uses a weighted sum of each company's share price relative to its 5-day, 20-day, 60-day, 120-day and 240-day moving averages. 'Extreme' values are weighted sums greater than 100% and less than -100%. We would caution that this indicator is best used for timing shorter-term reversals and, in many cases, higher highs and lower lows will be seen. <div class="content-highlight">
In the DETAIL section below, we highlight the current top and bottom twenty-five large capitalisation outliers, as well as those companies that have seen the most significant positive and negative changes in their outlier percentage in the last two weeks and provide short comments on companies of particular note.
<a href="https://www.smartkarma.com/entities/26181" target="_blank" data-smartkarma-citation="entities:26181:1">PKSHA Technology (3993 JP)</a> is currently the most extreme large capitalisation positive outlier and an excellent example of a -100 to 100 'roundtrip' in under two months. <a href="https://www.smartkarma.com/entities/24540" target="_blank" data-smartkarma-citation="entities:24540:1">SanBio (4592 JP)</a> is, again, the most extreme negative outlier, having topped the 13th January positive outlier list and is another 'round-tripper'. We also add the chart for 'cockroach' stock <a href="https://www.smartkarma.com/entities/8244" target="_blank" data-smartkarma-citation="entities:8244:1">Leopalace21 (8848 JP)</a> which no longer qualifies for inclusion in our tables, having lost 60% of its value in the last two weeks and 79% in less than a year.
</div><div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/079/890/original/2019-02-24_12-58-23.png?1550980729" class="editor-image img-responsive" data-smartkarma-image-id="79890"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/079/891/original/2019-02-24_12-59-54.png?1550980806" class="editor-image img-responsive" data-smartkarma-image-id="79891"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/079/892/original/2019-02-24_13-12-58.png?1550981589" class="editor-image img-responsive" data-smartkarma-image-id="79892"></figure>Source: Japan Analytics
</div>

- MARKET COMPOSITE -Source: Japan AnalyticsALMOST THREE-MONTH HIGH RECOVERY - The bear market rally is now in its second stage, and the market composite is now 14% above the Christmas Day low. The 'market value'-based percentage above moving averages almost reached a new three-month on Thursday; the stock count version is lagging as usual.Source: Japan AnalyticsSTILL SOME UPSIDE - Using the three-month rate of change in this indicator, we are a few weeks away from generating a short-term sell signal, the last such trigger having occurred on 25th October. - SECTORS - 
LEGEND: The 'sparklines' show the three-year trend in the weighted percentage above moving average relative to the Market Composite and the 'STDev' column is a measure of the variability of that relative measure. The table also provides averages for the breaks above and breaks below and the positive and negative crossovers.SECTOR BREAKDOWN - The top six sectors remain domestic and defensive. REITs, Information Technology, Transporation and Utilities continue from our previous review with Restaurants and Healthcare replacing Media and Telecommunications. Equally predictable is the bottom half-dozen - Banks, Non-Bank Finance, Autos, and Metals remain from two weeks ago, with Construction and Retail replacing Chemicals and Other Materials. - COMPANIES -COMPANY MOVING AVERAGE OUTLIERS - As with the Market Composite and Sectors, the Moving Average Outlier indicator uses a weighted sum of each company's share price relative to its 5-day, 20-day, 60-day, 120-day and 240-day moving averages. 'Extreme' values are weighted sums greater than 100% and less than -100%. We would caution that this indicator is best used for timing shorter-term reversals and, in many cases, higher highs and lower lows will be seen. 
In the DETAIL section below, we highlight the current top and bottom twenty-five large capitalisation outliers, as well as those companies that have seen the most significant positive and negative changes in their outlier percentage in the last two weeks and provide short comments on companies of particular note.
PKSHA Technology (3993 JP) is currently the most extreme large capitalisation positive outlier and an excellent example of a -100 to 100 'roundtrip' in under two months. SanBio (4592 JP) is, again, the most extreme negative outlier, having topped the 13th January positive outlier list and is another 'round-tripper'. We also add the chart for 'cockroach' stock Leopalace21 (8848 JP) which no longer qualifies for inclusion in our tables, having lost 60% of its value in the last two weeks and 79% in less than a year.

Source: Japan Analytics


🇯🇵 Japan: Moving Average Outliers - PKSHA, SanBio, Goldwin, ZOZO, Drugstores & ASICS

Director, Pearl Hill Advisors

Nicholas Tanner

Director

Pearl Hill Advisors

Equity Bottom-Up

The company forecasts an operating profit of Y55bn this year, the consensus is for Y57bn which is not unreasonable as management want to hold profits back. Next year assuming they make about Y64bn, the shares are on about 19x. With long term profits growth expected, and a good shareholder return policy this is a great domestic long term BUY. BUY into recent weakness. Foreigners own 24% of this name.

The company forecasts an operating profit of Y55bn this year, the consensus is for Y57bn which is not unreasonable as management want to hold profits back. Next year assuming they make about Y64bn, the shares are on about 19x. With long term profits growth expected, and a good shareholder return policy this is a great domestic long term BUY. BUY into recent weakness. Foreigners own 24% of this name.

Hikari Tsushin (9435) Continues to Generate Profits Growth as New Business Streams Contribute. BUY

Japan

HIKARI TSUSHIN, INC. is a mobile telecommunication service subscription agency. The Company also operates telecommunication services stores, HIT SHOP, which sell cellular telephones, and related goods.  Hikari Tsushin also sells office automation equipment and insurance.

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Hikari Tsushin (9435 JP)

Aslead Capital Hostile Offer for Fuji Kosan (5009)

Fuji Kosan (5009) is the lastest smallcap value name to attract a hostile bidder putting a shot across the bow of recalcitrant management. A wake...

Travis Lundy

Mystar Engineering (4695) TOB/MBO Price Bumped - STILL Not Enough

On 10 November I wrote that the Founder's son's MBO of Mystar Engineering (4695 JP) was being done at the wrong price. SmallCap Mystar Engineering...

Travis Lundy

MyStar Engineering MBO/TOB Looks In Trouble

The title of my first piece on this situation was SmallCap Mystar Engineering (4695) Tender Offer - WRONG PRICE. I said the situation looked...

Travis Lundy

🇯🇵 Japan: Moving Average Outliers - PKSHA, SanBio, Goldwin, ZOZO, Drugstores & ASICS

- MARKET COMPOSITE -ALMOST THREE-MONTH HIGH RECOVERY - The bear market rally is now in its second stage, and the market composite is now 14% above...

Campbell Gunn

Hikari Tsushin (9435) Continues to Generate Profits Growth as New Business Streams Contribute. BUY

The company forecasts an operating profit of Y55bn this year, the consensus is for Y57bn which is not unreasonable as management want to hold...

Pearl Hill Advisors

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