Equity Analyst, LightStream Research

Oshadhi Kumarasiri

Equity Analyst

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.

Event-Driven

On April 26th 2019, an announcement was made of a possible merger between <a href="https://www.smartkarma.com/entities/matsumotokiyoshi-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:2259:1" rel="noopener">Matsumotokiyoshi Holdings Co., Ltd. (3088 JP)</a> (<a target="_blank">Matsumoto</a>) and <a href="https://www.smartkarma.com/entities/cocokara-fine-inc" target="_blank" data-smartkarma-citation="entities:15447:1" rel="noopener">Cocokara Fine (3098 JP)</a> (Cocokara).As a part of this long running merger process, Matsumoto initially purchased 20.02% of Cocokara share capital for approximately ¥38bn in early 2020 to make Cocokara an affiliate of Matsumoto.Towards the end of last month, Matsumoto and Cocokara announced the details of the management integration plan, including the medium term revenue and OP margin targets, expected synergies and the share exchange ratio for the merger.The merger is expected to be effective from 1st October 2021, subjected to shareholder approval from both Matsumoto and Cocokara shareholders during their respective AGMs on 29th June 2021.On 1st October 2021, Cocokara shareholders, excluding treasury shares and Matsumoto’s 20.02% ownership, will receive 1.7 Matsumoto shares per every share of Cocokara. As a result, a total of 40.795m shares will be added to Matsumoto’s share capital following the offer.<a href="https://www.smartkarma.com/profiles/travis-lundy" target="_blank" data-smartkarma-citation="accounts:25" rel="noopener">Travis Lundy</a> has been following the developments of Matsumoto &amp; Cocokara merger from the start, and its highly recommended reading his insights to understand the background of the deal and trading opportunities from an event angle. Please find below the links to his latest insights, discussing the details of the recently announced management integration plan and his take on the fundamental valuation of the combined business. <a href="https://www.smartkarma.com/insights/matsukiyococokara-co-the-merger" target="_blank" rel="noopener">MatsukiyoCocokara &amp; Co - The Merger</a>, <a href="https://www.smartkarma.com/insights/matsukiyococokara-merger-and-implied-forward-forecasts" target="_blank" rel="noopener">MatsuKiyoCocokara Merger and Implied Forward Forecasts</a>This is the first in a series of insights, discussing our view on the combined entity’s fundamentals including revenue and OP drivers, likelihood of meeting medium term targets, the feasibility of extracting ¥30bn in synergies and the valuation.

On April 26th 2019, an announcement was made of a possible merger between Matsumotokiyoshi Holdings Co., Ltd. (3088 JP) (Matsumoto) and Cocokara Fine (3098 JP) (Cocokara).As a part of this long running merger process, Matsumoto initially purchased 20.02% of Cocokara share capital for approximately ¥38bn in early 2020 to make Cocokara an affiliate of Matsumoto.Towards the end of last month, Matsumoto and Cocokara announced the details of the management integration plan, including the medium term revenue and OP margin targets, expected synergies and the share exchange ratio for the merger.The merger is expected to be effective from 1st October 2021, subjected to shareholder approval from both Matsumoto and Cocokara shareholders during their respective AGMs on 29th June 2021.On 1st October 2021, Cocokara shareholders, excluding treasury shares and Matsumoto’s 20.02% ownership, will receive 1.7 Matsumoto shares per every share of Cocokara. As a result, a total of 40.795m shares will be added to Matsumoto’s share capital following the offer.Travis Lundy has been following the developments of Matsumoto &amp; Cocokara merger from the start, and its highly recommended reading his insights to understand the background of the deal and trading opportunities from an event angle. Please find below the links to his latest insights, discussing the details of the recently announced management integration plan and his take on the fundamental valuation of the combined business. MatsukiyoCocokara &amp; Co - The Merger, MatsuKiyoCocokara Merger and Implied Forward ForecastsThis is the first in a series of insights, discussing our view on the combined entity’s fundamentals including revenue and OP drivers, likelihood of meeting medium term targets, the feasibility of extracting ¥30bn in synergies and the valuation.

A Quick Run Through Fundamentals Before The MatsumotoKiyoshi and Cocokara Fine Merger

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Last Week in Event SPACE: China Youzan, Mcdonald's, Beijing Jingneng, Ricoh, Melco Resorts, LG Corp

Travis Lundy

Equity Bottom-Up

The <a href="https://corp.cocokarafine.co.jp/english/ir/pdf/20210226_eng_03.pdf" target="_blank" rel="noopener">presentation</a> provided by <a href="https://www.smartkarma.com/entities/matsumotokiyoshi-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:2259:1" rel="noopener">Matsumotokiyoshi Holdings Co., Ltd. (3088 JP)</a> and <a href="https://www.smartkarma.com/entities/cocokara-fine-inc" target="_blank" data-smartkarma-citation="entities:15447:1" rel="noopener">Cocokara Fine (3098 JP)</a> when they announced their Management Integration told of two major inputs to what is helping the stocks bounce today. 
There is one other which has been implicit, but people did not appear to include it in their numbers.
There is yet another which is coincidental.
One of the two inputs - expected OP synergies - is probably a bit stronger than people expected. 
The other one - the Business Objective of the Group - is obviously new, but perhaps should not be.
The initial discussion was carried in <a href="https://www.smartkarma.com/insights/matsukiyococokara-co-the-merger" target="_blank" data-smartkarma-citation="insights:48652" rel="noopener">MatsukiyoCocokara &amp; Co - The Merger</a> after a half dozen insights on the deal over the previous 18 months-plus (yes, we've been looking at this a long time).
Below, I break down how each of these inputs shows up in Revenue, OP, and NP based on consensus numbers, adjusted to NEWCO Group Totals and MatsuKiyo-equivalent Per Share Estimates, and historical seasonality to project a quarterly and running 4Q total Revenue, OP, NP, and EPS future consensus.

The presentation provided by Matsumotokiyoshi Holdings Co., Ltd. (3088 JP) and Cocokara Fine (3098 JP) when they announced their Management Integration told of two major inputs to what is helping the stocks bounce today. 
There is one other which has been implicit, but people did not appear to include it in their numbers.
There is yet another which is coincidental.
One of the two inputs - expected OP synergies - is probably a bit stronger than people expected. 
The other one - the Business Objective of the Group - is obviously new, but perhaps should not be.
The initial discussion was carried in MatsukiyoCocokara &amp; Co - The Merger after a half dozen insights on the deal over the previous 18 months-plus (yes, we've been looking at this a long time).
Below, I break down how each of these inputs shows up in Revenue, OP, and NP based on consensus numbers, adjusted to NEWCO Group Totals and MatsuKiyo-equivalent Per Share Estimates, and historical seasonality to project a quarterly and running 4Q total Revenue, OP, NP, and EPS future consensus.

MatsuKiyoCocokara Merger and Implied Forward Forecasts

On Friday after the close, <a href="https://www.smartkarma.com/entities/matsumotokiyoshi-holdings-co" target="_blank" data-smartkarma-citation="entities:2259:1" rel="noopener">Matsumotokiyoshi Holdings Co (3088 JP)</a> and <a href="https://www.smartkarma.com/entities/cocokara-fine-inc" target="_blank" data-smartkarma-citation="entities:15447:1" rel="noopener">Cocokara Fine (3098 JP)</a> announced the details of their Management Integration, including the scrip exchange ratio. Earlier in the month I had written about the possibility of this announcement coming with earnings results but they waited until the last day of the month. Since I wrote and since earnings, Cocokara has outperformed Matsukiyo - by 3.4% through Thursday and an additional 2.8% on Friday, but this late spurt was not really included in the ratio chosen by the two companies when they announced the terms at 1.0 shares of Cocokara per 1.7 share of Matsumotokiyoshi.The merger is set to go through on 1 October after the AGMs for both companies are held 29 June to approve the deal. It will eventually end up as a holding company with operating subsidiaries. There's a lot to think about here. The numbers are reasonably compelling.

On Friday after the close, Matsumotokiyoshi Holdings Co (3088 JP) and Cocokara Fine (3098 JP) announced the details of their Management Integration, including the scrip exchange ratio. Earlier in the month I had written about the possibility of this announcement coming with earnings results but they waited until the last day of the month. Since I wrote and since earnings, Cocokara has outperformed Matsukiyo - by 3.4% through Thursday and an additional 2.8% on Friday, but this late spurt was not really included in the ratio chosen by the two companies when they announced the terms at 1.0 shares of Cocokara per 1.7 share of Matsumotokiyoshi.The merger is set to go through on 1 October after the AGMs for both companies are held 29 June to approve the deal. It will eventually end up as a holding company with operating subsidiaries. There's a lot to think about here. The numbers are reasonably compelling.

Just under two years ago, <a href="https://www.smartkarma.com/entities/cocokara-fine-inc" target="_blank" data-smartkarma-citation="entities:15447:1" rel="noopener">Cocokara Fine (3098 JP)</a> was being courted by multiple suitors, and in early Q3 after the Independent Review Committee decided to negotiate with <a href="https://www.smartkarma.com/entities/matsumotokiyoshi-holdings-co" target="_blank" data-smartkarma-citation="entities:2259:1" rel="noopener">Matsumotokiyoshi Holdings Co (3088 JP)</a> rather than <a href="https://www.smartkarma.com/entities/sugi-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:9255:1" rel="noopener">Sugi Holdings (7649 JP)</a>, it looked like a deal was forthcoming. However in early 2020, it was announced that the decision on a ratio was put off and the two companies agreed to a delayed-vs-expectations integration process.Rather than push a deal forward at that moment, the two companies agreed at the end of January 2020 that MatsuKiyo would put up funds (which turned out to be ¥38.4bn) to buy shares of cocokara in a third-party placement of 20% of the company (<a href="https://corp.cocokarafine.co.jp/news/pdf/20200331_TD01.pdf" target="_blank" rel="noopener">completed 31 March</a>), and the two companies would work on a plan to introduce synergies, and then the ratio would be decided when management teams at both firms had a better idea of what effect the synergies might have on future management profit forecasts.Subsequent earnings announcements have suggested that synergies have been found. <div>
<table class="table table-striped"><tbody>
<tr><td colspan="3" style="width: 724px;"><h2>The Schedule of the Integration</h2></td></tr>
<tr>
<td style="width: 128px;">Date</td>
<td style="width: 330px;">Detail</td>
<td style="width: 224px;">Comment</td>
</tr>
<tr>
<td style="width: 128px;">31 Jan 2020</td>
<td style="width: 330px;">Business Integration &amp; Capital Alliance Announcement</td>
<td style="width: 224px;">The New Deal</td>
</tr>
<tr>
<td style="width: 128px;">31 Jan to 30 April 2020</td>
<td style="width: 330px;">Submission of Capital Alliance/Integration to JFTC, JFTC Approval, Cocokara Share Issuance, Equity Affiliate status</td>
<td style="width: 224px;">JFTC Approval, and investment made March 2020</td>
</tr>
<tr>
<td style="width: 128px;">THE NEXT YEAR</td>
<td colspan="2" style="width: 330px;">The two companies will work on the synergies and discuss their vision, plans, etc, and come up with a Merger Ratio, which will be in part dependent on the new management profit forecasts built up after several months or a year's worth of effort at finding synergies.</td>
</tr>
<tr>
<td style="width: 128px;">Feb 2021</td>
<td style="width: 330px;">Execution of definitive agreement related to the Business Integration</td>
<td style="width: 224px;">The Merger Ratio Announcement</td>
</tr>
<tr>
<td style="width: 128px;">June 2021</td>
<td style="width: 330px;">Ordinary general meetings of shareholders of both companies (resolution regarding approval of the Business Integration)</td>
<td style="width: 224px;">The Approvals</td>
</tr>
<tr>
<td style="width: 128px;">1 Oct 2021</td>
<td style="width: 330px;">Effective Date of the Business Integration</td>
<td style="width: 224px;">The Merger</td>
</tr>
</tbody></table>
The cocokara/MatsuKiyo price ratio fell to 1.28 and that was a great time to buy. My trade recommendations on the ratio are marked in the chart below.
Then covid-19 effects knocked markets for a loop and the ratio dropped from 1.43 a month later to 1.20 in mid-March to 1.40 again at end-March as share prices fluctuated wildly. The ratio stabilized in the 1.37-1.43 range until end-May when the ratio jumped. It then moved up steadily to 1.80 last week before dropping to 1.76 where it was in September when I recommended buying both names, noting that Matsumoto Kiyoshi had underperformed its peers.
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/186/347/original/Screenshot+2021-02-02+at+9.09.30+PM.png?1612271389" class="editor-image img-responsive" data-smartkarma-image-id="186347"></figure></section>
The ratio has fallen since then but both stocks are up, MatsuKiyo up more.
<h3>Where We Are Now</h3>
Just over a week ago, on 22 January 2021, cocokara fine announced that because of the announcement of the state of emergency related to covid-19, workers and service providers working from home might experience some delay in preparing the financial releases and therefore the announcement of Q3 earnings would be put off from the regularly scheduled date of 29 January to 12 February 2021. The statement says no analyst meeting to discuss Q3 results will be held. 
A decision on the definitive agreement on Business Integration is due in February 2021.
Now cocokara is releasing earnings on 12 February, and I believe one should expect Matsumoto Kiyoshi results on the same day. 
Hmmm...
</div>

Just under two years ago, Cocokara Fine (3098 JP) was being courted by multiple suitors, and in early Q3 after the Independent Review Committee decided to negotiate with Matsumotokiyoshi Holdings Co (3088 JP) rather than Sugi Holdings (7649 JP), it looked like a deal was forthcoming. However in early 2020, it was announced that the decision on a ratio was put off and the two companies agreed to a delayed-vs-expectations integration process.Rather than push a deal forward at that moment, the two companies agreed at the end of January 2020 that MatsuKiyo would put up funds (which turned out to be ¥38.4bn) to buy shares of cocokara in a third-party placement of 20% of the company (completed 31 March), and the two companies would work on a plan to introduce synergies, and then the ratio would be decided when management teams at both firms had a better idea of what effect the synergies might have on future management profit forecasts.Subsequent earnings announcements have suggested that synergies have been found. 

The Schedule of the Integration

Date
Detail
Comment


31 Jan 2020
Business Integration &amp; Capital Alliance Announcement
The New Deal


31 Jan to 30 April 2020
Submission of Capital Alliance/Integration to JFTC, JFTC Approval, Cocokara Share Issuance, Equity Affiliate status
JFTC Approval, and investment made March 2020


THE NEXT YEAR
The two companies will work on the synergies and discuss their vision, plans, etc, and come up with a Merger Ratio, which will be in part dependent on the new management profit forecasts built up after several months or a year's worth of effort at finding synergies.


Feb 2021
Execution of definitive agreement related to the Business Integration
The Merger Ratio Announcement


June 2021
Ordinary general meetings of shareholders of both companies (resolution regarding approval of the Business Integration)
The Approvals


1 Oct 2021
Effective Date of the Business Integration
The Merger


The cocokara/MatsuKiyo price ratio fell to 1.28 and that was a great time to buy. My trade recommendations on the ratio are marked in the chart below.
Then covid-19 effects knocked markets for a loop and the ratio dropped from 1.43 a month later to 1.20 in mid-March to 1.40 again at end-March as share prices fluctuated wildly. The ratio stabilized in the 1.37-1.43 range until end-May when the ratio jumped. It then moved up steadily to 1.80 last week before dropping to 1.76 where it was in September when I recommended buying both names, noting that Matsumoto Kiyoshi had underperformed its peers.

The ratio has fallen since then but both stocks are up, MatsuKiyo up more.
Where We Are Now
Just over a week ago, on 22 January 2021, cocokara fine announced that because of the announcement of the state of emergency related to covid-19, workers and service providers working from home might experience some delay in preparing the financial releases and therefore the announcement of Q3 earnings would be put off from the regularly scheduled date of 29 January to 12 February 2021. The statement says no analyst meeting to discuss Q3 results will be held. 
A decision on the definitive agreement on Business Integration is due in February 2021.
Now cocokara is releasing earnings on 12 February, and I believe one should expect Matsumoto Kiyoshi results on the same day. 
Hmmm...


Cocokara/​MatsuKiyo Deal Finally Coming?

Japan

MatsukiyoCocokara & Co. operates drug store chains. The Company retails medicines, cosmetics, health foods, beauty care products, and other products. MatsukiyoCocokara & also operates supermarkets and home centers.

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MatsukiyoCocokara (3088 JP)

A Quick Run Through Fundamentals Before The MatsumotoKiyoshi and Cocokara Fine Merger

Even though the ¥1,500bn revenue number looks rather daunting at first glance, if MatsukiyoCocokara is able to grow its store count at a compound...

Oshadhi Kumarasiri

Last Week in Event SPACE: China Youzan, Mcdonald's, Beijing Jingneng, Ricoh, Melco Resorts, LG Corp

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

MatsuKiyoCocokara Merger and Implied Forward Forecasts

The MatsuKiyo+Cocokara NEWCO makes for a compelling investment. One model for the breakdown of the components of forward revenue, OP, and NP, and...

Travis Lundy

MatsukiyoCocokara & Co - The Merger

The MatsuKiyo Cocokara merger NEWCO will be named MatsuKiyo Cocokara. That's boring. The details, however, are not. This stock is cheap and...

Travis Lundy

Cocokara/MatsuKiyo Deal Finally Coming?

10 days ago cocokara fine (3098) announced a delay in Q3 earnings because of the coronavirus emergency measures - to the same day as MatsuKiyo...

Travis Lundy

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

A Quick Run Through Fundamentals Before The MatsumotoKiyoshi and Cocokara Fine Merger

Even though the ¥1,500bn revenue number looks rather daunting at first glance, if MatsukiyoCocokara is able to grow its store count at a compound...

Oshadhi Kumarasiri

Last Week in Event SPACE: China Youzan, Mcdonald's, Beijing Jingneng, Ricoh, Melco Resorts, LG Corp

The weekend is here! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed...

David Blennerhassett

MatsuKiyoCocokara Merger and Implied Forward Forecasts

The MatsuKiyo+Cocokara NEWCO makes for a compelling investment. One model for the breakdown of the components of forward revenue, OP, and NP, and...

Travis Lundy

MatsukiyoCocokara & Co - The Merger

The MatsuKiyo Cocokara merger NEWCO will be named MatsuKiyo Cocokara. That's boring. The details, however, are not. This stock is cheap and...

Travis Lundy

Cocokara/​MatsuKiyo Deal Finally Coming?

10 days ago cocokara fine (3098) announced a delay in Q3 earnings because of the coronavirus emergency measures - to the same day as MatsuKiyo...

Travis Lundy

Cocokara/MatsuKiyo Deal Finally Coming?