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>On 14 November, media outlets reported that Sapphireterra has <a href="https://img1.wsimg.com/blobby/go/e7ddad68-3d70-4201-b3f3-16f665298127/downloads/055ae6dd-96a9-457f-baab-01eafcc12759/STC%20IS%20Press%20Release%202025-11-05%20E%20FINAL.pdf?ver=1763150335833" target="_blank" rel="noopener">sent a letter</a> to the <a href="https://www.smartkarma.com/entities/itochu-shokuhin-co-ltd" target="_blank" data-smartkarma-citation="entities:14985:1" rel="noopener">Itochu Shokuhin (2692 JP)</a> Board suggesting two strategic alternatives to improve shareholder returns. </li>
<li>Sapphireterra has suggested that <a href="https://www.smartkarma.com/entities/itochu-corp" target="_blank" data-smartkarma-citation="entities:18448:1" rel="noopener">Itochu Corp (8001 JP)</a> privatise Itochu-Shokuhin at JPY14,000, a 50.5% takeover premium. Due to the shareholder structure, Itochu does not need to be this generous.</li>
<li>Sapphireterra has also alternatively suggested JPY7,000 special dividend. The strong YTD share performance suggests no pressing need for the Board to act on this proposal. </li>
</ul>


On 14 November, media outlets reported that Sapphireterra has sent a letter to the Itochu Shokuhin (2692 JP) Board suggesting two strategic alternatives to improve shareholder returns. 
Sapphireterra has suggested that Itochu Corp (8001 JP) privatise Itochu-Shokuhin at JPY14,000, a 50.5% takeover premium. Due to the shareholder structure, Itochu does not need to be this generous.
Sapphireterra has also alternatively suggested JPY7,000 special dividend. The strong YTD share performance suggests no pressing need for the Board to act on this proposal. 


Itochu-Shokuhin (2692 JP): Itochu Likely to Shrug off Sapphireterra’s Privatisation Call

<ul>
<li>
<a href="https://www.smartkarma.com/entities/mitsubishi-shokuhin-co-ltd" target="_blank" data-smartkarma-citation="entities:19778:1" rel="noopener">Mitsubishi Shokuhin (7451 JP)</a> has recommended a tender offer from <a href="https://www.smartkarma.com/entities/mitsubishi-corp" target="_blank" data-smartkarma-citation="entities:20668:1" rel="noopener">Mitsubishi Corp (8058 JP)</a> at JPY6,340 per share, a 17.2% premium to the undisturbed price.</li>
<li>While the offer represents an all-time high, it is materially below the midpoint of the IFA DCF valuation range. </li>
<li>The light offer resulted from an unusually long process, with twelve rounds of proposals. However, the shareholder structure suggests a done deal.  </li>
</ul>



Mitsubishi Shokuhin (7451 JP) has recommended a tender offer from Mitsubishi Corp (8058 JP) at JPY6,340 per share, a 17.2% premium to the undisturbed price.
While the offer represents an all-time high, it is materially below the midpoint of the IFA DCF valuation range. 
The light offer resulted from an unusually long process, with twelve rounds of proposals. However, the shareholder structure suggests a done deal.  


Mitsubishi Shokuhin (7451 JP): MitCorp (8058 JP) Light Tender Offer at JPY6,340

Global Mobility/Transport, Equity Long-Short

Mohshin Aziz

Equity Bottom-Up

<ul>
<li>We identified <a href="https://www.smartkarma.com/entities/kato-sangyo-co-ltd" target="_blank" data-smartkarma-citation="entities:4882:1" rel="noopener">Kato Sangyo (9869 JP)</a> (Kato) as the most attractive Japanese laggard opportunity due to its net cash balance sheet, undemanding PER, and attractive PEG and P/FCF ratios  </li>
<li>Management guides for 25% EPS growth in FY24 with only 15% net profit growth, implying a massive share buyback of ~JPY9 billion (5.4% shares in issue) with subsequent cancellation       </li>
<li>The combination of impending share buybacks, cancellation of existing treasury shares, and dividends equates to 10% shareholder returns in FY24   </li>
</ul>


We identified Kato Sangyo (9869 JP) (Kato) as the most attractive Japanese laggard opportunity due to its net cash balance sheet, undemanding PER, and attractive PEG and P/FCF ratios  
Management guides for 25% EPS growth in FY24 with only 15% net profit growth, implying a massive share buyback of ~JPY9 billion (5.4% shares in issue) with subsequent cancellation       
The combination of impending share buybacks, cancellation of existing treasury shares, and dividends equates to 10% shareholder returns in FY24   


Japanese Laggard Opportunity #1: Kato Sangyo (9869 JP)

Expert on Japan Retail and Consumer Markets, JapanConsuming

Michael Causton

Expert on Japan Retail and Consumer Markets

Real Insight on Japanese Consumer Markets

JapanConsuming

JapanConsuming is a specialist research firm producing intelligence on Japanese retail and consumer markets. Founded in 2000, JapanConsuming has become the leading provider of insights on Japanese retailers and consumer trends to retailers, brands, government agencies and investors. As well as a highly regarded monthly report on the market, JapanConsuming produces in-depth reports on retail sectors, seminars on key trends and telephone consulting to investors on trends and retailers.

JapanConsuming was founded by Michael Causton and Roy Larke. 

Thematic (Sector/Industry)

<ul>
<li>Major wholesalers in food, pharmaceuticals and books continue to prosper due to their role in both serving and protecting fragmented distribution channels.</li>
<li>Profits returned last year as clients picked themselves up after Covid, but as inflation sets in, these middlemen are being squeezed by both manufacturers and retailers and profits may slump.</li>
<li>They now need to offer an ever increasing array of value-added services to continue to grow and not all have the capability. More M&amp;A may be on the cards.</li>
</ul>


Major wholesalers in food, pharmaceuticals and books continue to prosper due to their role in both serving and protecting fragmented distribution channels.
Profits returned last year as clients picked themselves up after Covid, but as inflation sets in, these middlemen are being squeezed by both manufacturers and retailers and profits may slump.
They now need to offer an ever increasing array of value-added services to continue to grow and not all have the capability. More M&amp;A may be on the cards.


Major Japan Wholesalers up 2.8% in 2021, but Problems Looming

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Periscope Analytics

Periscope Analytics focuses on event-driven trades across Asia Pacific and provides comprehensive, timely and systematic coverage of index changes to major Asia Pacific indices in a structured manner.

The analysis includes forecasted inclusions and exclusions to all major Asian indices that have significant amount of tracking assets, including estimates of passive buy/sell flow on the stocks. The service also provides commentary and impact of market consultations, ground rule changes, and other events (IPOs, spin-offs, M&A) that could lead to index changes and passive flow.

Periscope Analytics works with multi-strategy hedge funds, proprietary trading firms, stat arb trading groups and long-only investors that invest and trade in the Asia Pacific region with the data being used to trade index rebalances, avoid pre-positioning and passive flow, and to time entry into and exit from stocks.

Event-Driven Trades Across Asia Pacific

NTT (Nippon Telegraph & Telephone) / Event-Driven

<ul>
<li>On 7 April, the JPX announced the changes to the Free Float Weights (FFW) for the TOPIX Index. There are some big changes due to the updated FFW methodology.</li>
<li>From April to June, we see a one-way turnover of 2.87% and a one-way trade of ¥2,285bn. Some stocks have opposite way flows in different months.</li>
<li>Stocks with inflows outperformed stocks with outflows from Oct-Dec 2021 before giving up all the gains. These stocks have started to outperform and could continue outperforming over the next quarter.</li>
</ul>


On 7 April, the JPX announced the changes to the Free Float Weights (FFW) for the TOPIX Index. There are some big changes due to the updated FFW methodology.
From April to June, we see a one-way turnover of 2.87% and a one-way trade of ¥2,285bn. Some stocks have opposite way flows in different months.
Stocks with inflows outperformed stocks with outflows from Oct-Dec 2021 before giving up all the gains. These stocks have started to outperform and could continue outperforming over the next quarter.


TOPIX FFW Transition - Big Flows from April to June

Japan

KATO SANGYO CO., LTD. is a wholesaler which handles processed foods including seasoning, dried foodstuffs, soft drinks, and frozen and canned foods.  The Company has a distribution network through supermarkets and co-op stores.

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Kato Sangyo (9869 JP)

Itochu-Shokuhin (2692 JP): Itochu Likely to Shrug off Sapphireterra’s Privatisation Call

Sapphireterra has suggested two proposals (privatisation by Itochu, special divs) to improve shareholder returns. The Board is likely to react to...

Arun George

Mitsubishi Shokuhin (7451 JP): MitCorp (8058 JP) Light Tender Offer at JPY6,340

While the offer represents an all-time high, it is materially below the midpoint of the IFA DCF valuation range. However, the shareholder structure...

Arun George

Japanese Laggard Opportunity #1: Kato Sangyo (9869 JP)

Kato Sangyo is an attractive laggard opportunity with net cash and strong growth. We forecast it shareholder returns of ~10% in 2024 via combo of...

Mohshin Aziz

Major Japan Wholesalers up 2.8% in 2021, but Problems Looming

Wholesalers in Japan had a good year last year. The biggest firms like Medipal may prosper but there are challenges for the sector which could...

Michael Causton

TOPIX FFW Transition - Big Flows from April to June

Changes to the Topix FFW methodology will result in a turnover of 2.87% & trade of ¥2,285bn from April to June. There is a lot to trade on some...

Brian Freitas

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

Itochu-Shokuhin (2692 JP): Itochu Likely to Shrug off Sapphireterra’s Privatisation Call

Sapphireterra has suggested two proposals (privatisation by Itochu, special divs) to improve shareholder returns. The Board is likely to react to...

Arun George

Mitsubishi Shokuhin (7451 JP): MitCorp (8058 JP) Light Tender Offer at JPY6,340

While the offer represents an all-time high, it is materially below the midpoint of the IFA DCF valuation range. However, the shareholder structure...

Arun George

Japanese Laggard Opportunity #1: Kato Sangyo (9869 JP)

​Kato Sangyo is an attractive laggard opportunity with net cash and strong growth. We forecast it shareholder returns of ~10% in 2024 via combo of...

Mohshin Aziz

Major Japan Wholesalers up 2.8% in 2021, but Problems Looming

Wholesalers in Japan had a good year last year. The biggest firms like Medipal may prosper but there are challenges for the sector which could...

Michael Causton

TOPIX FFW Transition - Big Flows from April to June

Changes to the Topix FFW methodology will result in a turnover of 2.87% & trade of ¥2,285bn from April to June. There is a lot to trade on some...

Brian Freitas

Kato Sangyo is an attractive laggard opportunity with net cash and strong growth. We forecast it shareholder returns of ~10% in 2024 via combo of...