Japan/Asia Long-Short, LightStream Research

Mio Kato

Japan/Asia Long-Short

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.

Equity Bottom-Up

<p>In this insight we focus on the higher growth names within the elderly care space in Japan, Solasto, Charm Care, Elan and TOB target N Field. Unlike the moderate growth names we examined in our previous insight, these companies have all maintained higher growth rates through interesting strategies and while N Field lags its peers slightly it is more comparable to them than the low-to-mid-single digit growth names within the industry.</p>

In this insight we focus on the higher growth names within the elderly care space in Japan, Solasto, Charm Care, Elan and TOB target N Field. Unlike the moderate growth names we examined in our previous insight, these companies have all maintained higher growth rates through interesting strategies and while N Field lags its peers slightly it is more comparable to them than the low-to-mid-single digit growth names within the industry.

Elderly Care TOB Valuations – The High Growth Names

Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>On 8 February 2021, in announcing <a href="https://ssl4.eir-parts.net/doc/2398/ir_material_for_fiscal_ym10/94981/00.pdf" target="_blank" rel="noopener">Q3 earnings</a>, <a href="https://www.smartkarma.com/entities/tsukui-corp" target="_blank" data-smartkarma-citation="entities:13727:1" rel="noopener">Tsukui Corp (2398 JP)</a> also announced that an entity called MBPK Life LLC - formed by MBK Partners.</p>
<p>The Tender Offer is struck at ¥924/share, which is well below the highs reached two years ago. </p>
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<p>This has been structured by MBK and the #1 shareholder so that the #1 shareholder Tsukui Kikaku does not tender at ¥924/share, but instead sells shares back to the company after the deal is complete, doing so at ¥753/share. This is presented as an effort to maximize the profits of the ordinary shareholders, but there is tax planning going on in the background. </p>
<p>The average weighted Adjusted EV is a few turns lower than the headline EV Tender Offer Price to minorities, but that means the buyer probably has room for manoeuvre if pushed. This is not as egregiously bad as some other recent MBOs and take-privates in the space. </p>
<p>Some of it depends on the nature of the assets. Is it an asset play or a service play. Strangely enough, the service plays seem to get a higher multiple. </p>
</section>
<p>More below the fold. </p>

On 8 February 2021, in announcing Q3 earnings, Tsukui Corp (2398 JP) also announced that an entity called MBPK Life LLC - formed by MBK Partners.
The Tender Offer is struck at ¥924/share, which is well below the highs reached two years ago. 




This has been structured by MBK and the #1 shareholder so that the #1 shareholder Tsukui Kikaku does not tender at ¥924/share, but instead sells shares back to the company after the deal is complete, doing so at ¥753/share. This is presented as an effort to maximize the profits of the ordinary shareholders, but there is tax planning going on in the background. 
The average weighted Adjusted EV is a few turns lower than the headline EV Tender Offer Price to minorities, but that means the buyer probably has room for manoeuvre if pushed. This is not as egregiously bad as some other recent MBOs and take-privates in the space. 
Some of it depends on the nature of the assets. Is it an asset play or a service play. Strangely enough, the service plays seem to get a higher multiple. 

More below the fold. 

Tsukui Holdings (2398) - Another CHEAP Japan Nursing Care Take-Private Deal

<p><a href="https://www.smartkarma.com/entities/n-field-co-ltd" target="_blank" data-smartkarma-citation="entities:5150:1" rel="noopener">N Field Co Ltd (6077 JP)</a> has seen prodigious growth since its launch in 2003. Founded by then-39-year old Noguchi Kazuteru, who had spent 20 years as a nurse, the company has since its start specialized in home-visit nursing care. The field of nursing is not very well-paid and it is said one only gets to a certain seniority by having worked all three shifts (the day shift, the evening shift, and the overnight shift). </p>
<p>Noguchi-san wanted to build a company where a nurse could have a decent career only working during the day and he founded the company with four other nurses in 2003. Noguchi-san had been working in the field of taking care of psychiatric patients so he thought that N Field could specialize in the outpatient nursing care of psychiatric and mental health patients who need assistance to continue treatment at home. </p>
<p>In the 15th year of business (2017), the company reached ¥8.0bn of revenues, with revenues growing no less than 25%yoy in <em>any</em> of the previous 10 years (revenue was ¥480mm in 2009). Three years later in 2020, revenues were 46% higher. Top line growth seems expected to slow further the next couple of years, but it is not clear it needs to.</p>
<p>The company was listed on TSE Mothers in August 2013 and moved to TSE First Section in 2015. IN 2016, Noguchi-san gave up the role of CEO, passing it on to Takagi-san, who then passed it to Matayoshi-san in 2017, and the CEO is now Kubo-san. </p>
<p>N Field has a specialty in outpatient nursing in the psychiatric and mental health fields. This is a growing field, and the company is growing quickly within the growing field. The company has become more efficient than ever as far as I can tell, and I expect that the company can grow organically for decades to come. </p>
<h3>The NEW News</h3>
<p>Unison Capital has announced a Tender Offer to buy out the company at ¥1,200/share. This is below where the stock spent the five years from early 2014 to late 2018 when revenue growth slowed faster-than-expected.</p>
<p>There are a lot of investors who bought the stock at well above the Tender Offer Price but when the shares dropped through this Tender Offer Price on the way down in the last week of November 2018, they did not stop there. They fell to half that by late Q3 2019. Then in the covid-crash they fell further. The question is whether the shareholders who bought for growth give up here, or not.</p>
<p>This is an interesting deal. </p>
<div>
<p>I am reminded of the last words (the last line below) of Mr. Partridge ("Old Turkey") in Edwin Lefèvre's <em>Reminiscences of a Stock Operator</em> after he had purchased a stock on the urging of a tipster, and the tipster proposed he sell the shares on a bounce, hoping for a "reaction" on which to buy them... </p>
</div>
<div>
<blockquote>
<p>"I couldn’t think of selling that stock.” </p>
<p>“You couldn’t?” asked Elmer, beginning to look doubtful himself. It is a habit with most tip givers to be tip takers. “Why not?” And Elmer drew nearer.</p>
<p>“Why, this is a bull market!” The old fellow said it as though he had given a long and detailed explanation.</p>
<p>“That’s all right,” said Elmer, looking angry because of his disappointment. “I know this is a bull market as well as you do. But you’d better slip them that stock of yours and buy it back on the reaction. You might as well reduce the cost to yourself.”</p>
<p><strong>“My dear boy,” said old Partridge, in great distress “my dear boy, if I sold that stock now I’d lose my position; and then where would I be?”</strong></p>
</blockquote>
</div>
<div>
<p>With a stock growing top line 10+% and OP in the teens to 20+% with what appear to be blue-sky ahead of them (and what I see as a possibility that Japan will be willing to import nursing talent at lower-than-Japan cost), this could easily be seen as a position that the proverbial Mr Partridge would not want to sell. </p>
<p>More below.</p>
</div>

N Field Co Ltd (6077 JP) has seen prodigious growth since its launch in 2003. Founded by then-39-year old Noguchi Kazuteru, who had spent 20 years as a nurse, the company has since its start specialized in home-visit nursing care. The field of nursing is not very well-paid and it is said one only gets to a certain seniority by having worked all three shifts (the day shift, the evening shift, and the overnight shift). 
Noguchi-san wanted to build a company where a nurse could have a decent career only working during the day and he founded the company with four other nurses in 2003. Noguchi-san had been working in the field of taking care of psychiatric patients so he thought that N Field could specialize in the outpatient nursing care of psychiatric and mental health patients who need assistance to continue treatment at home. 
In the 15th year of business (2017), the company reached ¥8.0bn of revenues, with revenues growing no less than 25%yoy in any of the previous 10 years (revenue was ¥480mm in 2009). Three years later in 2020, revenues were 46% higher. Top line growth seems expected to slow further the next couple of years, but it is not clear it needs to.
The company was listed on TSE Mothers in August 2013 and moved to TSE First Section in 2015. IN 2016, Noguchi-san gave up the role of CEO, passing it on to Takagi-san, who then passed it to Matayoshi-san in 2017, and the CEO is now Kubo-san. 
N Field has a specialty in outpatient nursing in the psychiatric and mental health fields. This is a growing field, and the company is growing quickly within the growing field. The company has become more efficient than ever as far as I can tell, and I expect that the company can grow organically for decades to come. 
The NEW News
Unison Capital has announced a Tender Offer to buy out the company at ¥1,200/share. This is below where the stock spent the five years from early 2014 to late 2018 when revenue growth slowed faster-than-expected.
There are a lot of investors who bought the stock at well above the Tender Offer Price but when the shares dropped through this Tender Offer Price on the way down in the last week of November 2018, they did not stop there. They fell to half that by late Q3 2019. Then in the covid-crash they fell further. The question is whether the shareholders who bought for growth give up here, or not.
This is an interesting deal. 

I am reminded of the last words (the last line below) of Mr. Partridge ("Old Turkey") in Edwin Lefèvre's Reminiscences of a Stock Operator after he had purchased a stock on the urging of a tipster, and the tipster proposed he sell the shares on a bounce, hoping for a "reaction" on which to buy them... 



"I couldn’t think of selling that stock.” 
“You couldn’t?” asked Elmer, beginning to look doubtful himself. It is a habit with most tip givers to be tip takers. “Why not?” And Elmer drew nearer.
“Why, this is a bull market!” The old fellow said it as though he had given a long and detailed explanation.
“That’s all right,” said Elmer, looking angry because of his disappointment. “I know this is a bull market as well as you do. But you’d better slip them that stock of yours and buy it back on the reaction. You might as well reduce the cost to yourself.”
“My dear boy,” said old Partridge, in great distress “my dear boy, if I sold that stock now I’d lose my position; and then where would I be?”



With a stock growing top line 10+% and OP in the teens to 20+% with what appear to be blue-sky ahead of them (and what I see as a possibility that Japan will be willing to import nursing talent at lower-than-Japan cost), this could easily be seen as a position that the proverbial Mr Partridge would not want to sell. 
More below.


N Field (6077) Take-Private by Unison Capital - Fast Growth Long Runway Asset Going Not So Rich

Japan TMT Analyst

Pelham Smithers

Market Intel on Asian Tech with a Japan focus

Pelham Smithers Associates

Founded in 2009, Pelham Smithers Associates (PSA) provides market intelligence on Asian technology, focusing in particular on Japan. The industries covered by our team of specialists are: consumer electronics, telecomms, pharmaceuticals, internet, electronic parts and materials, automotive technology, retail and capital goods. 

Research is provided by the following:
Pelham Smithers: Macro, consumer electronics, telecoms & pharma
Joel Scheiman: Electronics materials / components
Julie Boote: Autos
Will Nestuk: Capital goods, machinery & transportation equipment parts
Thao Nguyen: eCommerce, internet content, marketing & advertising

Thematic (Sector/Industry)

<p>The suggestion of government orchestration against <a href="https://www.smartkarma.com/entities/8979" target="_blank" data-smartkarma-citation="entities:8979:1">Ono</a>’s immunotherapy treatment Opdivo (nivolumab) has moved a stage further with a report in the Nikkei that the Japanese Health Ministry is considering setting rules on new drug usage during this fiscal year, starting with <a href="https://www.smartkarma.com/entities/8979" target="_blank" data-smartkarma-citation="entities:8979:1">Ono</a>’s Opdivo and <a href="https://www.smartkarma.com/entities/6091" target="_blank" data-smartkarma-citation="entities:6091">Astellas</a>’s Repatha. Patients may be limited to those who can see certain impact from the treatment, which in turn would mean the drug could only be prescribed at those institutions with the facilities to check…</p>

The suggestion of government orchestration against Ono’s immunotherapy treatment Opdivo (nivolumab) has moved a stage further with a report in the Nikkei that the Japanese Health Ministry is considering setting rules on new drug usage during this fiscal year, starting with Ono’s Opdivo and Astellas’s Repatha. Patients may be limited to those who can see certain impact from the treatment, which in turn would mean the drug could only be prescribed at those institutions with the facilities to check…

Opdivo Singled Out in Government Rule Change

Japan

N Field Co., Ltd. provides health care services. The Company offers psychiatry and nursing services in Japan.

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N Field Co Ltd (6077 JP)

Elderly Care TOB Valuations – The High Growth Names

We examine the fairness of the valuation of the TOB for N Field comparing the name to other fast growing peers in the sector.

Mio Kato

Tsukui Holdings (2398) - Another CHEAP Japan Nursing Care Take-Private Deal

Tsukui Hldgs is another cheap-ish nursing care take-private. These cases are where opportunistic PE Funds buy from catalyst-driven sellers. It's...

Travis Lundy

N Field (6077) Take-Private by Unison Capital - Fast Growth Long Runway Asset Going Not So Rich

High growth psychiatric outpatient nursing care business N Field has growth like a weed. It continues to grow strongly. PE Fund Unison Capital...

Travis Lundy

Opdivo Singled Out in Government Rule Change

The suggestion of government orchestration against Ono’s immunotherapy treatment Opdivo (nivolumab) has moved a stage further with a report in the...

Pelham Smithers Associates

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