IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/ajis-co-ltd" target="_blank" data-smartkarma-citation="entities:3539:1" rel="noopener">AJIS Co Ltd (4659 JP)</a> has recommended Saito Holdings' tender offer at JPY4,450, a 8.3% premium to the last close and a 46.4% premium to the undisturbed price (16 February). </li>
<li>The offer represents an all-time high and aligns with the midpoint of the IFA DCF valuation range. The irrevocables will satisfy the minimum.</li>
<li>The likelihood of a competing offer is low, as the founding family can block a rival EGM vote on the share consolidation. Therefore, this is a done deal.</li>
</ul>



AJIS Co Ltd (4659 JP) has recommended Saito Holdings' tender offer at JPY4,450, a 8.3% premium to the last close and a 46.4% premium to the undisturbed price (16 February). 
The offer represents an all-time high and aligns with the midpoint of the IFA DCF valuation range. The irrevocables will satisfy the minimum.
The likelihood of a competing offer is low, as the founding family can block a rival EGM vote on the share consolidation. Therefore, this is a done deal.


AJIS (4659 JP): Founding Family’s Tender Offer Is a Done Deal

'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/000/143/496/original/2020-06-30_14-16-44.png?1593494217" class="editor-image img-responsive" data-smartkarma-image-id="143496"></figure>
<div class="content-caption">Source • Japan Analytics</div>
<p><strong>THE CASH CONVERSION CYCLE</strong> - Net Working Capital is a measure of how efficiently a company manages its short-term assets and liabilities to generate cash and is also known as the Cash Conversion Cycle. In practice, Net Working Capital is scaled by the number of days of Revenue or Cost of Goods Sold that are 'tied' up in three components - Receivables, Inventory, and Payables.</p>
<p><strong>Net Working Capital Days</strong> varies by industry and the lower the number, the better. Amounts over 210 days are excessive, and a sign of business stress.  Net Working Capital is defined as:-</p>
<ul>
<li>
<strong>+ Receivables/Revenue </strong>- the average number of days required to collect on sales. Businesses usually extend a degree of credit to non-cash customers.  Receivables Days over 100 are excessive.</li>
<li>
<strong>+ Inventory/Cost of Goods Sold -</strong> the average number of days it takes to sell out of Inventory. Amounts vary widely by industry but days over 210 are excessive.</li>
<li>- <strong>Payables/Cost of Goods Sold -</strong>the average number of days the company takes to settle transactions with suppliers. By extending nominally interest-free credit, suppliers provide operating leverage to a business. A larger negative number is better, but days less than -100 are excessive.</li>
</ul>
<p>The relationship between Receivables and Payables should also be considered particularly where the company is giving more generous credit terms to its customers than it receives from its suppliers. The Cash Conversion Cycle for the aggregate of all non-financial currently-listed Japanese companies has averaged 77 days over the last thirty years. However, over the previous twelve months., a fourteen-day rise in Inventory Days during the last four years has pushed Net Working Capital Days to 93.</p>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/143/529/original/2020-06-30_15-09-41.png?1593497395" class="editor-image img-responsive" data-smartkarma-image-id="143529"></figure>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/143/530/original/2020-06-30_15-10-32.png?1593497471" class="editor-image img-responsive" data-smartkarma-image-id="143530"></figure>
<div class="content-caption">Source • Japan Analytics</div>
<div class="content-caption"></div>
<p><strong>NET WORKING CAPITAL DAYS AS A STRESS TEST</strong> - The correlation between Net Working Capital Days and relative performance varies by company and by Sectors. The examples above show how signals can be heeded -  <a href="https://www.smartkarma.com/entities/nikon-corp" target="_blank" data-smartkarma-citation="entities:7117:1" rel="noopener">Nikon (7731 JP)</a>, or ignored - <a href="https://www.smartkarma.com/entities/smc-corp" target="_blank" data-smartkarma-citation="entities:20866:1" rel="noopener">SMC (6273 JP)</a> since 2018. (For more on SMC working capital issues, please see my colleague <a href="https://www.smartkarma.com/profiles/scott-foster" target="_blank" data-smartkarma-citation="accounts:1134" rel="noopener">Scott Foster</a>'s Insight of last year - <a href="https://www.smartkarma.com/insights/smc-6273-jp-getting-in-line-with-reality" target="_blank" data-smartkarma-citation="insights:30081" rel="noopener">SMC (6273 JP): Getting in Line with Reality</a>).   </p>
<p>For this Insight, we have limited our review to larger capitalisation manufacturing companies. In the<strong> DETAIL</strong> section below, we shall cover the outliers at both ends of <strong>Receivables Days</strong>, <strong>Inventory Days</strong>, <strong>Payables Days</strong>, and finally <strong>Net Working Capital Days</strong>.</p>


Source • Japan Analytics
THE CASH CONVERSION CYCLE - Net Working Capital is a measure of how efficiently a company manages its short-term assets and liabilities to generate cash and is also known as the Cash Conversion Cycle. In practice, Net Working Capital is scaled by the number of days of Revenue or Cost of Goods Sold that are 'tied' up in three components - Receivables, Inventory, and Payables.
Net Working Capital Days varies by industry and the lower the number, the better. Amounts over 210 days are excessive, and a sign of business stress.  Net Working Capital is defined as:-


+ Receivables/Revenue - the average number of days required to collect on sales. Businesses usually extend a degree of credit to non-cash customers.  Receivables Days over 100 are excessive.

+ Inventory/Cost of Goods Sold - the average number of days it takes to sell out of Inventory. Amounts vary widely by industry but days over 210 are excessive.
- Payables/Cost of Goods Sold -the average number of days the company takes to settle transactions with suppliers. By extending nominally interest-free credit, suppliers provide operating leverage to a business. A larger negative number is better, but days less than -100 are excessive.

The relationship between Receivables and Payables should also be considered particularly where the company is giving more generous credit terms to its customers than it receives from its suppliers. The Cash Conversion Cycle for the aggregate of all non-financial currently-listed Japanese companies has averaged 77 days over the last thirty years. However, over the previous twelve months., a fourteen-day rise in Inventory Days during the last four years has pushed Net Working Capital Days to 93.


Source • Japan Analytics

NET WORKING CAPITAL DAYS AS A STRESS TEST - The correlation between Net Working Capital Days and relative performance varies by company and by Sectors. The examples above show how signals can be heeded -  Nikon (7731 JP), or ignored - SMC (6273 JP) since 2018. (For more on SMC working capital issues, please see my colleague Scott Foster's Insight of last year - SMC (6273 JP): Getting in Line with Reality).   
For this Insight, we have limited our review to larger capitalisation manufacturing companies. In the DETAIL section below, we shall cover the outliers at both ends of Receivables Days, Inventory Days, Payables Days, and finally Net Working Capital Days.

🇯🇵 JAPAN • Stress Tests Part 5: Net Working Capital Outliers

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/134/507/original/2020-05-20_06-42-32.png?1589924596" class="editor-image img-responsive" data-smartkarma-image-id="134507"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>STRAGGLERS</strong> - As we wind down this series of Insights, the 'gap' between our proxies for earnings and Total Market Cap is now the largest in fifteen years, courtesy of central bank liquidity injections. Our lagging Results Score has yet to breach the 2016 'low', a creditable outcome but will do so by August. We still await annual results for 'stragglers' <a href="https://www.smartkarma.com/entities/recruit-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:15070:1" rel="noopener">Recruit (6098 JP)</a>, <a href="https://www.smartkarma.com/entities/tokio-marine-holdings-inc" target="_blank" data-smartkarma-citation="entities:7591:1" rel="noopener">Tokio Marine (8766 JP)</a>, <a href="https://www.smartkarma.com/entities/nissan-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:72:1" rel="noopener">Nissan Motor (7201 JP)</a>, <a href="https://www.smartkarma.com/entities/hitachi-ltd" target="_blank" data-smartkarma-citation="entities:7797:1" rel="noopener">Hitachi (6501 JP)</a>, <a href="https://www.smartkarma.com/entities/fujifilm-holdings-corp" target="_blank" data-smartkarma-citation="entities:16353:1" rel="noopener">Fujifilm (4901 JP)</a>, <a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba (6502 JP)</a>, and <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>. </p><div><p>in the <strong>DETAIL</strong> below, we shall review Monday's updates:-</p></div><div><ul>
<li>The balance between positive/neutral/negative of the 51 results announcements was 21:3:27. The average change in Results Score was -1.1.</li>
<li>For the 24 revisions/initial forecasts, the split was 8:1:15, and the average Forecast/Revision Score was -5.4. Again less than 50% of companies reporting full-year results chose to make current year forecasts.</li>
</ul></div>

Source • Japan AnalyticsSTRAGGLERS - As we wind down this series of Insights, the 'gap' between our proxies for earnings and Total Market Cap is now the largest in fifteen years, courtesy of central bank liquidity injections. Our lagging Results Score has yet to breach the 2016 'low', a creditable outcome but will do so by August. We still await annual results for 'stragglers' Recruit (6098 JP), Tokio Marine (8766 JP), Nissan Motor (7201 JP), Hitachi (6501 JP), Fujifilm (4901 JP), Toshiba (6502 JP), and Hikari Tsushin (9435 JP). in the DETAIL below, we shall review Monday's updates:-
The balance between positive/neutral/negative of the 51 results announcements was 21:3:27. The average change in Results Score was -1.1.
For the 24 revisions/initial forecasts, the split was 8:1:15, and the average Forecast/Revision Score was -5.4. Again less than 50% of companies reporting full-year results chose to make current year forecasts.


🇯🇵 JAPAN • Results & Revisions 19th May - SEI, Kotobuki Spirits, Autobacs Seven

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. 

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/117/963/original/2020-02-15_09-46-55.png?1581796265" class="editor-image img-responsive" data-smartkarma-image-id="117963"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>A YEAR TO FORGET</strong> - The aggregate earnings of Japanese listed companies peaked on December 26th 2018 and, over the last five quarters, have declined by ¥10.5 trillion or by 22%. Net margins have declined by 135 basis points over this period to 4.5%, 224 bps below the current operating margin. Whatever the uncertainties over the impact of Covid-19, the current quarter will see a further decline. A base-case outlook for aggregate Net Income is ¥30 trillion by May 2020, which, if the total market cap were to remain at current levels, would take the  PE to a ten-year high of 22.4 times. The decline in Operating Income has been more moderate at 11%, illustrating the still all-too-frequent write-offs that Japanse corporate routinely require as penance for their mostly-overseas capital misallocations.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/117/966/original/2020-02-16_05-32-51.png?1581798783" class="editor-image img-responsive" data-smartkarma-image-id="117966"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/117/967/original/2020-02-16_05-28-20.png?1581798803" class="editor-image img-responsive" data-smartkarma-image-id="117967"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>ACCELERATING DOWNTREND</strong> -  Trailing-twelve-month (TTM) Revenues are now declining quarter-on-quarter, and the pace of decline in Operating Income has accelerated for the fourth quarter in a row. The aggregate one year forward forecasts have seen falling QoQ revenues and OP since TTM-2. With only one month to go before the end of FY2020 for the majority of companies and with many December year-end companies looking forward ten months, a degree of optimism has slowed the pace of decline in the current quarter. We expect Covid-19 to result in many of these forecasts to be revised down at the interim results to be released in August. </p><p><strong>RECESSION</strong> - With GDP shrinking by an annualised 6.3% in the fourth quarter and Covid-19 having at least a similar impact in the current quarter, Japan will be in an, albeit 'technical', recession by the spring.</p><div class="content-highlight"><p>In the<strong> DETAIL</strong> below, we shall review the actual results and initial and revised forecasts by Sector and highlight the best and worst-performing companies by one-quarter revenue and margin changes. Part 2 will update our Results and Revision Scoring for the market, Sectors, Peer Groups and Companies.</p></div>

Source • Japan AnalyticsA YEAR TO FORGET - The aggregate earnings of Japanese listed companies peaked on December 26th 2018 and, over the last five quarters, have declined by ¥10.5 trillion or by 22%. Net margins have declined by 135 basis points over this period to 4.5%, 224 bps below the current operating margin. Whatever the uncertainties over the impact of Covid-19, the current quarter will see a further decline. A base-case outlook for aggregate Net Income is ¥30 trillion by May 2020, which, if the total market cap were to remain at current levels, would take the  PE to a ten-year high of 22.4 times. The decline in Operating Income has been more moderate at 11%, illustrating the still all-too-frequent write-offs that Japanse corporate routinely require as penance for their mostly-overseas capital misallocations.Source • Japan AnalyticsACCELERATING DOWNTREND -  Trailing-twelve-month (TTM) Revenues are now declining quarter-on-quarter, and the pace of decline in Operating Income has accelerated for the fourth quarter in a row. The aggregate one year forward forecasts have seen falling QoQ revenues and OP since TTM-2. With only one month to go before the end of FY2020 for the majority of companies and with many December year-end companies looking forward ten months, a degree of optimism has slowed the pace of decline in the current quarter. We expect Covid-19 to result in many of these forecasts to be revised down at the interim results to be released in August. RECESSION - With GDP shrinking by an annualised 6.3% in the fourth quarter and Covid-19 having at least a similar impact in the current quarter, Japan will be in an, albeit 'technical', recession by the spring.In the DETAIL below, we shall review the actual results and initial and revised forecasts by Sector and highlight the best and worst-performing companies by one-quarter revenue and margin changes. Part 2 will update our Results and Revision Scoring for the market, Sectors, Peer Groups and Companies.

🇯🇵 JAPAN • IT'S A WRAP! Part 1 - 2020-Q1 Earnings Results & Forecasts

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/118/081/original/2020-02-15_06-17-37.png?1581880049" class="editor-image img-responsive" data-smartkarma-image-id="118081"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/118/082/original/2020-02-17_04-10-15.png?1581880238" class="editor-image img-responsive" data-smartkarma-image-id="118082"></figure><div class="content-caption">Source • Japan Analytics</div><p><strong>14TH FEBRUARY ROUNDUP -</strong> With apologies to <a href="https://www.smartkarma.com/entities/trend-micro-inc" target="_blank" data-smartkarma-citation="entities:13172:1" rel="noopener">Trend Micro (4704 JP)</a> and <a href="https://www.smartkarma.com/entities/bridgestone-corp" target="_blank" data-smartkarma-citation="entities:8914:1" rel="noopener">Bridgestone (5108 JP)</a> who have yet to report, this will be our last daily roundup for this 'season'. After an additional 398 results and 253 forecasts/revision announcements, our Results Score dropped by a further eight basis points to -0.84, a decline of 190 basis points since the beginning of the year. The Forecast/Revision Score added three bps to reach 0.70, forty basis point higher than at the end of December. The last time that the Forecast/Revision Score was more than 150 bps higher than the Results Score was in the first calendar quarter of 2016 and preceded a sharp market upturn. The current market value is, however, ¥160 trillion higher than at that point, assisted by the constant market intervention by the Bank of Japan. <strong>Covid-19's impact will see the 2016 playbook repeated next quarter with a lower Results Score and a 'sideways' Forecast/Results Score. We are less optimistic that the market will repeat the 14% rise seen in 2016-Q2. The cycle low point will be reached with the mostly-interim results to be released in six months. </strong></p>

Source • Japan Analytics14TH FEBRUARY ROUNDUP - With apologies to Trend Micro (4704 JP) and Bridgestone (5108 JP) who have yet to report, this will be our last daily roundup for this 'season'. After an additional 398 results and 253 forecasts/revision announcements, our Results Score dropped by a further eight basis points to -0.84, a decline of 190 basis points since the beginning of the year. The Forecast/Revision Score added three bps to reach 0.70, forty basis point higher than at the end of December. The last time that the Forecast/Revision Score was more than 150 bps higher than the Results Score was in the first calendar quarter of 2016 and preceded a sharp market upturn. The current market value is, however, ¥160 trillion higher than at that point, assisted by the constant market intervention by the Bank of Japan. Covid-19's impact will see the 2016 playbook repeated next quarter with a lower Results Score and a 'sideways' Forecast/Results Score. We are less optimistic that the market will repeat the 14% rise seen in 2016-Q2. The cycle low point will be reached with the mostly-interim results to be released in six months. 

🇯🇵 JAPAN • Results & Revisions Daily Roundup - 14th February ▲2212 4927 8358 ▼ 6502 6098 9435

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)

AJIS (4659 JP): Founding Family’s Tender Offer Is a Done Deal

The offer represents an all-time high and aligns with the midpoint of the IFA DCF valuation range. The irrevocables will satisfy the minimum.

Arun George

🇯🇵 JAPAN • Stress Tests Part 5: Net Working Capital Outliers

THE CASH CONVERSION CYCLE - Net Working Capital is a measure of how efficiently a company manages its short-term assets and liabilities to...

Campbell Gunn

🇯🇵 JAPAN • Results & Revisions 19th May - SEI, Kotobuki Spirits, Autobacs Seven

STRAGGLERS - As we wind down this series of Insights, the 'gap' between our proxies for earnings and Total Market Cap is now the largest in fifteen...

Campbell Gunn

🇯🇵 JAPAN • IT'S A WRAP! Part 1 - 2020-Q1 Earnings Results & Forecasts

A YEAR TO FORGET - The aggregate earnings of Japanese listed companies peaked on December 26th 2018 and, over the last five quarters, have declined...

Campbell Gunn

🇯🇵 JAPAN • Results & Revisions Daily Roundup - 14th February ▲2212 4927 8358 ▼ 6502 6098 9435

14TH FEBRUARY ROUNDUP - With apologies to Trend Micro (4704 JP) and Bridgestone (5108 JP) who have yet to report, this will be our last daily...

Campbell Gunn

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