Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

This was the basis of the trade. <a href="https://www.smartkarma.com/entities/7797" target="_blank" data-smartkarma-citation="entities:7797:1">Hitachi Ltd (6501 JP)</a> has been susceptible to pressure for a bump since even before the Tender Offer was announced because of the proxy fight at last year's board meeting for management rights. Hitachi supported the incumbent who consequently retired as chairman, but kept the continuity. The board was split 6:3. 
Since late January or early February when it became clear that board support for the deal was still split 6:3 and one of the points in a couple of the independent directors' comments as reasons why the deal was not supported was that Hitachi's bid at NT$60/share did not match an informal offer from Otis at $63/share, it has been clear that one way to extinguish that criticism was to bid NT$63 or higher. 
And now Hitachi has. After the close on Friday, a release from <a href="https://www.smartkarma.com/entities/14121" target="_blank" data-smartkarma-citation="entities:14121:1">Yungtay Engineering (1507 TT)</a> hit the <a href="http://mops.twse.com.tw/mops/web/t146sb05" target="_blank">mops system</a> saying that Hitachi had amended the Public Purchase statement by raising the Purchase Price to NT$65/share. This is closer to the high end of the original valuations provided by the law firm and public accountancy firms of NT$40.27-68.31 and NT$55.15-67.83. Taiwan Hitachi Elevator released a press release carried by the ChinaTimes <a href="https://www.chinatimes.com/realtimenews/20190322004021-260410" target="_blank">here</a>.
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Past coverage of this situation can be found at: 28 Oct 2018 - <a href="https://www.smartkarma.com/insights/going-up-hitachi-tender-for-yungtay-engineering-1507-tt" target="_blank" data-smartkarma-citation="insights:25395">Going Up! Hitachi Tender for Yungtay Engineering (1507 TT)</a> 17 Jan 2019 - <a href="https://www.smartkarma.com/insights/hitachi-tender-for-yungtay-engineering-launches" target="_blank" data-smartkarma-citation="insights:27308">Hitachi Tender for Yungtay Engineering Launches </a>26 Feb 2019 - <a href="https://www.smartkarma.com/insights/yungtay-noises-haven-t-produced-a-result-yet" target="_blank" data-smartkarma-citation="insights:28239">Yungtay Noises Haven't Produced a Result Yet 1</a>8 Mar 2019 - <a href="https://www.smartkarma.com/insights/yungtay-tummy-rumblings-continue-but-not-clear-to-what-avail" target="_blank" data-smartkarma-citation="insights:28640">Yungtay Tummy Rumblings Continue But Not Clear To What Avail</a>

This was the basis of the trade. Hitachi Ltd (6501 JP) has been susceptible to pressure for a bump since even before the Tender Offer was announced because of the proxy fight at last year's board meeting for management rights. Hitachi supported the incumbent who consequently retired as chairman, but kept the continuity. The board was split 6:3. 
Since late January or early February when it became clear that board support for the deal was still split 6:3 and one of the points in a couple of the independent directors' comments as reasons why the deal was not supported was that Hitachi's bid at NT$60/share did not match an informal offer from Otis at $63/share, it has been clear that one way to extinguish that criticism was to bid NT$63 or higher. 
And now Hitachi has. After the close on Friday, a release from Yungtay Engineering (1507 TT) hit the mops system saying that Hitachi had amended the Public Purchase statement by raising the Purchase Price to NT$65/share. This is closer to the high end of the original valuations provided by the law firm and public accountancy firms of NT$40.27-68.31 and NT$55.15-67.83. Taiwan Hitachi Elevator released a press release carried by the ChinaTimes here.

Past coverage of this situation can be found at: 28 Oct 2018 - Going Up! Hitachi Tender for Yungtay Engineering (1507 TT) 17 Jan 2019 - Hitachi Tender for Yungtay Engineering Launches 26 Feb 2019 - Yungtay Noises Haven't Produced a Result Yet 18 Mar 2019 - Yungtay Tummy Rumblings Continue But Not Clear To What Avail

Hitachi Bumps Yungtay Bid to NT$65. Take It.

On March 6th, a day before the <a href="https://www.smartkarma.com/entities/7797" target="_blank" data-smartkarma-citation="entities:7797:1">Hitachi Ltd (6501 JP)</a> Taiwan elevator business Tender Offer for just over a third of <a href="https://www.smartkarma.com/entities/14121" target="_blank" data-smartkarma-citation="entities:14121:1">Yungtay Engineering (1507 TT)</a> was expected to close, the closing date was extended to 22 April, notably because the acquiring entity had not yet received Taiwan Ministry of Economy Investment Commission approval for the foreign investment, and the Fair Trading Commission had not yet given the green light, so there was no hope of getting it done by the next day in accordance with Taiwan's Public Acquisition of Public Company Shares Administrative Law Article 18 Para 2. The proposed purchase price was unchanged at NT$60. While there have been noises in the market that both Otis and Schindler, which are reported to hold roughly 5-6% each (last year's shareholder list included UT Park View which <a href="https://www.smartkarma.com/entities/12750" target="_blank" data-smartkarma-citation="entities:12750:1">United Technologies (UTX US)</a>'s 10-K showed was a wholly-owned sub) were willing to offer more than Hitachi's offered NT$60 (and MOPS filings indicate the board approval meeting in end-January referenced a NT$63 potential bid), there was no competitive bid made public and to the authorities by five business days prior to the first bid close (which would have been 26 Feb) as per the same law Article 7 Para 2.Since then, there have also been other ructions. While terms remain unchanged, it is worthwhile looking into what has been going on. This is still interesting and because of its various inputs, slightly disconcerting to some, and the modalities continue to surprise me.Past coverage of this situation can be found at: 28 Oct 2018 - <a href="https://www.smartkarma.com/insights/going-up-hitachi-tender-for-yungtay-engineering-1507-tt" target="_blank" data-smartkarma-citation="insights:25395">Going Up! Hitachi Tender for Yungtay Engineering (1507 TT)</a> 17 Jan 2019 - <a href="https://www.smartkarma.com/insights/hitachi-tender-for-yungtay-engineering-launches" target="_blank" data-smartkarma-citation="insights:27308">Hitachi Tender for Yungtay Engineering Launches </a>26 Feb 2019 - <a href="https://www.smartkarma.com/insights/yungtay-noises-haven-t-produced-a-result-yet" target="_blank" data-smartkarma-citation="insights:28239">Yungtay Noises Haven't Produced a Result Yet</a>

On March 6th, a day before the Hitachi Ltd (6501 JP) Taiwan elevator business Tender Offer for just over a third of Yungtay Engineering (1507 TT) was expected to close, the closing date was extended to 22 April, notably because the acquiring entity had not yet received Taiwan Ministry of Economy Investment Commission approval for the foreign investment, and the Fair Trading Commission had not yet given the green light, so there was no hope of getting it done by the next day in accordance with Taiwan's Public Acquisition of Public Company Shares Administrative Law Article 18 Para 2. The proposed purchase price was unchanged at NT$60. While there have been noises in the market that both Otis and Schindler, which are reported to hold roughly 5-6% each (last year's shareholder list included UT Park View which United Technologies (UTX US)'s 10-K showed was a wholly-owned sub) were willing to offer more than Hitachi's offered NT$60 (and MOPS filings indicate the board approval meeting in end-January referenced a NT$63 potential bid), there was no competitive bid made public and to the authorities by five business days prior to the first bid close (which would have been 26 Feb) as per the same law Article 7 Para 2.Since then, there have also been other ructions. While terms remain unchanged, it is worthwhile looking into what has been going on. This is still interesting and because of its various inputs, slightly disconcerting to some, and the modalities continue to surprise me.Past coverage of this situation can be found at: 28 Oct 2018 - Going Up! Hitachi Tender for Yungtay Engineering (1507 TT) 17 Jan 2019 - Hitachi Tender for Yungtay Engineering Launches 26 Feb 2019 - Yungtay Noises Haven't Produced a Result Yet

Yungtay Tummy Rumblings Continue But Not Clear To What Avail

Japan Equity Analyst, all sectors

David Rubenstein

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. 

Equity Bottom-Up

Last Friday, Hitachi (6501) was reported to be considering selling Hitachi Chemical (4217), according to media sources over the weekend. This has sent Hitachi Chemical and its parent into a frenzy with Hitachi Chemical ADR up 13% last Friday. We believe this news is relevant for Hitachi High Tech because both subsidiaries are 51-52% consolidated by the parent Hitachi, and both have arguably businesses with little synergy with the parent. We believe that Hitachi High Tech is also rumored to be on the block for sale or spin-off.  Media sources say that Hitachi is considering a sale of Hitachi Chemical and would reap Y300bn.  The current value of their 51% ownership in Hitachi Chemical is Y211bn, and thus there is 42% implied upside if the Y300bn figure is achieved.To recap Q3 results for Hitachi High Tech from January 31, 2019, the numbers were decent with earnings above consensus forecasts by 33% for Q3 (Y15.8bn OP versus Y13.8bn forecast). The profit rise was due to improved margins in medical and continued strength in process semiconductor equipment. The shares are up 20% year-to-date, outperforming the Nikkei by 15%. Some of the fears of a sharp slowdown in semiconductor have been nullified by the continued strength in logic chip investments as well as the improved profitability in medical clinical analyzers. Medical profits soared 46% YoY in Q3 to Y7.6bn on a 13% YoY increase in revenues. OP margin improved from 12.3% to 15.8% YoY.

Last Friday, Hitachi (6501) was reported to be considering selling Hitachi Chemical (4217), according to media sources over the weekend. This has sent Hitachi Chemical and its parent into a frenzy with Hitachi Chemical ADR up 13% last Friday. We believe this news is relevant for Hitachi High Tech because both subsidiaries are 51-52% consolidated by the parent Hitachi, and both have arguably businesses with little synergy with the parent. We believe that Hitachi High Tech is also rumored to be on the block for sale or spin-off.  Media sources say that Hitachi is considering a sale of Hitachi Chemical and would reap Y300bn.  The current value of their 51% ownership in Hitachi Chemical is Y211bn, and thus there is 42% implied upside if the Y300bn figure is achieved.To recap Q3 results for Hitachi High Tech from January 31, 2019, the numbers were decent with earnings above consensus forecasts by 33% for Q3 (Y15.8bn OP versus Y13.8bn forecast). The profit rise was due to improved margins in medical and continued strength in process semiconductor equipment. The shares are up 20% year-to-date, outperforming the Nikkei by 15%. Some of the fears of a sharp slowdown in semiconductor have been nullified by the continued strength in logic chip investments as well as the improved profitability in medical clinical analyzers. Medical profits soared 46% YoY in Q3 to Y7.6bn on a 13% YoY increase in revenues. OP margin improved from 12.3% to 15.8% YoY.

After almost three months of preparation after the initial news came out in October, <a href="https://www.smartkarma.com/entities/7797" target="_blank" data-smartkarma-citation="entities:7797:1">Hitachi Ltd (6501 JP)</a> launched its Tender Offer for <a href="https://www.smartkarma.com/entities/14121" target="_blank" data-smartkarma-citation="entities:14121:1">Yungtay Engineering (1507 TT)</a> in mid-January 2019. 
The background of the two companies' relationship, the board kerfuffle last year, and some detail on the financials and the growth of the Chinese mainland elevator market was discussed extensively in <a href="https://www.smartkarma.com/insights/going-up-hitachi-tender-for-yungtay-engineering-1507-tt" target="_blank" data-smartkarma-citation="insights:25395">Going Up! Hitachi Tender for Yungtay Engineering (1507 TT)</a>at the end of October. When the Tender Offer was confirmed as launched, additional details were provided in <a href="https://www.smartkarma.com/insights/hitachi-tender-for-yungtay-engineering-launches" target="_blank" data-smartkarma-citation="insights:27308">Hitachi Tender for Yungtay Engineering Launches</a>.
Since then, there has been a litany of small "nuisance" events which so far have not resulted in any changes to the terms of the Tender Offer, but keeping a watchful eye is recommended.

After almost three months of preparation after the initial news came out in October, Hitachi Ltd (6501 JP) launched its Tender Offer for Yungtay Engineering (1507 TT) in mid-January 2019. 
The background of the two companies' relationship, the board kerfuffle last year, and some detail on the financials and the growth of the Chinese mainland elevator market was discussed extensively in Going Up! Hitachi Tender for Yungtay Engineering (1507 TT)at the end of October. When the Tender Offer was confirmed as launched, additional details were provided in Hitachi Tender for Yungtay Engineering Launches.
Since then, there has been a litany of small "nuisance" events which so far have not resulted in any changes to the terms of the Tender Offer, but keeping a watchful eye is recommended.

Yungtay Noises Haven't Produced a Result Yet

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

Quantitative Analysis

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/078/341/original/2019-02-10_05-07-57.png?1549742898" class="editor-image img-responsive" data-smartkarma-image-id="78341"></figure><div class="content-caption">Source: Japan Analytics</div>BOTTOM LINE BREAKDOWN - 1,277 earnings results and/or revisions announcements were released last week in Japan covering 36% of listed market capitalisation. The good news is that aggregate trailing-twelve-month (TTM) Operating Income only declined by ¥300b. Less welcome is the ¥1.7t decline in TTM Net Income to which <a href="https://www.smartkarma.com/entities/73" target="_blank" data-smartkarma-citation="entities:73:1">Toyota Motor (7203 JP)</a>, <a href="https://www.smartkarma.com/entities/154" target="_blank" data-smartkarma-citation="entities:154:1">Honda Motor (7267 JP)</a>, <a href="https://www.smartkarma.com/entities/315" target="_blank" data-smartkarma-citation="entities:315:1">Softbank Group (9984 JP)</a>, <a href="https://www.smartkarma.com/entities/7797" target="_blank" data-smartkarma-citation="entities:7797:1">Hitachi (6501 JP)</a> were the most significant contributors, each declining by more than ¥200b. Three 'financials', <a href="https://www.smartkarma.com/entities/742" target="_blank" data-smartkarma-citation="entities:742:1">Nomura Holdings (8604 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/6267" target="_blank" data-smartkarma-citation="entities:6267:1">Suruga Bank (8358 JP)</a> subtracted ¥400b between them. Only <a href="https://www.smartkarma.com/entities/563" target="_blank" data-smartkarma-citation="entities:563:1">Sony (6758 JP)</a> and <a href="https://www.smartkarma.com/entities/637" target="_blank" data-smartkarma-citation="entities:637:1">Toshiba (6502 JP)</a> added more than ¥100b for the quarter. The substantial 'gap' between forecast and TTM Net Income has been reduced to just ¥600b, again confirming the reliability of corporate forecasting in Japan. The All-Market PER is now 13.5 times but will likely rise as aggregate Net Income falls further in the next two weeks.<div class="content-highlight">In the DETAIL section below, we review this year's results of all listed companies in aggregate, update our All-Market and Sector Results &amp; Revision Scores and look at the twenty-five best and worst large-cap company results over the last week, with short comments on <a href="https://www.smartkarma.com/entities/13176" target="_blank" data-smartkarma-citation="entities:13176:1">Nabtesco Corp (6268 JP)</a>, <a href="https://www.smartkarma.com/entities/8467" target="_blank" data-smartkarma-citation="entities:8467:1">Workman (7564 JP)</a>, <a href="https://www.smartkarma.com/entities/20823" target="_blank" data-smartkarma-citation="entities:20823:1">Nakanishi (7716 JP)</a>, and <a href="https://www.smartkarma.com/entities/747" target="_blank" data-smartkarma-citation="entities:747:1">DeNA (2432 JP)</a></div>

Source: Japan AnalyticsBOTTOM LINE BREAKDOWN - 1,277 earnings results and/or revisions announcements were released last week in Japan covering 36% of listed market capitalisation. The good news is that aggregate trailing-twelve-month (TTM) Operating Income only declined by ¥300b. Less welcome is the ¥1.7t decline in TTM Net Income to which Toyota Motor (7203 JP), Honda Motor (7267 JP), Softbank Group (9984 JP), Hitachi (6501 JP) were the most significant contributors, each declining by more than ¥200b. Three 'financials', Nomura Holdings (8604 JP), Mizuho Financial Group (8411 JP), and Suruga Bank (8358 JP) subtracted ¥400b between them. Only Sony (6758 JP) and Toshiba (6502 JP) added more than ¥100b for the quarter. The substantial 'gap' between forecast and TTM Net Income has been reduced to just ¥600b, again confirming the reliability of corporate forecasting in Japan. The All-Market PER is now 13.5 times but will likely rise as aggregate Net Income falls further in the next two weeks.In the DETAIL section below, we review this year's results of all listed companies in aggregate, update our All-Market and Sector Results &amp; Revision Scores and look at the twenty-five best and worst large-cap company results over the last week, with short comments on Nabtesco Corp (6268 JP), Workman (7564 JP), Nakanishi (7716 JP), and DeNA (2432 JP)

Japan: Results & Revisions Second Cut - Bottom Line Breakdown

Japan

Hitachi, Ltd. manufactures communications and electronic equipment, heavy electrical and industrial machinery, and consumer electronics.  The Company's diverse product line ranges from nuclear power systems to kitchen appliances. Hitachi also operates subsidiaries in the wire and cable, metal, and chemical industries.

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Hitachi Ltd Adr (HTHIY US)

Hitachi Bumps Yungtay Bid to NT$65. Take It.

This was the basis of the trade. Hitachi Ltd (6501 JP) has been susceptible to pressure for a bump since even before the Tender Offer was announced...

Travis Lundy

Yungtay Tummy Rumblings Continue But Not Clear To What Avail

On March 6th, a day before the Hitachi Ltd (6501 JP) Taiwan elevator business Tender Offer for just over a third of Yungtay Engineering (1507...

Travis Lundy

Hitachi High Tech's Ace in the Hole

Last Friday, Hitachi (6501) was reported to be considering selling Hitachi Chemical (4217), according to media sources over the weekend. This has...

David Rubenstein

Yungtay Noises Haven't Produced a Result Yet

After almost three months of preparation after the initial news came out in October, Hitachi Ltd (6501 JP) launched its Tender Offer for Yungtay...

Travis Lundy

Japan: Results & Revisions Second Cut - Bottom Line Breakdown

BOTTOM LINE BREAKDOWN - 1,277 earnings results and/or revisions announcements were released last week in Japan covering 36% of listed market...

Campbell Gunn

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