Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

When <a href="https://www.smartkarma.com/entities/colowide-co-ltd" target="_blank" data-smartkarma-citation="entities:13967:1" rel="noopener">Colowide Co Ltd (7616 JP)</a> launched its Tender Offer for <a href="https://www.smartkarma.com/entities/ootoya-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:7329:1" rel="noopener">OOTOYA Holdings (2705 JP)</a> back in July, the attempt was to get to board control. Colowide only got to 46+% but at an EGM held earlier this month, they spilled the board and put their own in. My premise for selling at the time was that the stock was - even without thinking of covid effects - expensive at the terms proposed, so that if the Tender went through, the shares would fall afterwards, and there was a non-negligible chance the tender did not go through because the Ootoya kabunushi yutai (shareholder benefit) program was reasonably generous. At the time, I argued that the right trade for those who wanted the yutai program to continue was perhaps to sell their shares into the tender and buy Colowide instead, because their kabunushi yutai program was much more generous. From that point, Ootoya fell 35+% and even at a three-month low, Colowide has gained 14% (though from when I wrote that through end-Sep, Colowide was up 50% at times). New news out yesterday improves the chances Ootoya will see its shares bid up again.

When Colowide Co Ltd (7616 JP) launched its Tender Offer for OOTOYA Holdings (2705 JP) back in July, the attempt was to get to board control. Colowide only got to 46+% but at an EGM held earlier this month, they spilled the board and put their own in. My premise for selling at the time was that the stock was - even without thinking of covid effects - expensive at the terms proposed, so that if the Tender went through, the shares would fall afterwards, and there was a non-negligible chance the tender did not go through because the Ootoya kabunushi yutai (shareholder benefit) program was reasonably generous. At the time, I argued that the right trade for those who wanted the yutai program to continue was perhaps to sell their shares into the tender and buy Colowide instead, because their kabunushi yutai program was much more generous. From that point, Ootoya fell 35+% and even at a three-month low, Colowide has gained 14% (though from when I wrote that through end-Sep, Colowide was up 50% at times). New news out yesterday improves the chances Ootoya will see its shares bid up again. 

Ootoya - Watch Out For Upside on New Yutai Policy

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. 

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/oisix-ra-daichi-inc" target="_blank" data-smartkarma-citation="entities:10145:1" rel="noopener">Oisix ra daichi (3182 JP)</a> has managed to grow rapidly during the pandemic and make a much improved profit at the same time. The business remains small compared to supermarkets, but has a unique position as the only pureplay retailer for fresh foods. This has attracted new partners, the latest of which are Ootoya and Ebay's Qoo10.
Given current momentum to buy food online, even if competitors are also expanding, Oisix has now updated its forecasts, expecting sales to hit ¥90 billion, a 15.4% increase with operating profit coming in at ¥5 billion.

Oisix ra daichi (3182 JP) has managed to grow rapidly during the pandemic and make a much improved profit at the same time. The business remains small compared to supermarkets, but has a unique position as the only pureplay retailer for fresh foods. This has attracted new partners, the latest of which are Ootoya and Ebay's Qoo10.
Given current momentum to buy food online, even if competitors are also expanding, Oisix has now updated its forecasts, expecting sales to hit ¥90 billion, a 15.4% increase with operating profit coming in at ¥5 billion.

Oisix Thrives in Crisis, Ties with Ootoya

David Blennerhassett

Last Week in Event SPACE: Vedanta, Cardinal Res., Japan Retail Fund, HSBC, Opticomm, Tiffany/LVMH

'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.

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/157/903/original/2020-09-09_10-14-19.png?1599614088" class="editor-image img-responsive" data-smartkarma-image-id="157903"></figure><div class="content-caption">Source for all charts: Japan Analytics</div>LISTED RESTAURANTS - Japan currently has 102 listed restaurant companies with an aggregate market value of ¥4.9 trillion, representing 2.6% of all listed companies and 0.9% of total market value. Only thirteen companies are capitalised at over ¥100 billion, and forty-one have a market value of less than ¥10 billion. The Sector is ripe for consolidation and COVID-19 should provide a catalyst for an acceleration of the process.  Both <a href="https://www.smartkarma.com/entities/create-restaurants-holdings-inc" target="_blank" data-smartkarma-citation="entities:11513:1" rel="noopener">create restaurants (3387 JP)</a>, and <a href="https://www.smartkarma.com/entities/colowide-co-ltd" target="_blank" data-smartkarma-citation="entities:13967:1" rel="noopener">Colowide (7616 JP)</a> have positioned themselves as consolidators, but have become highly leveraged in the process.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/157/917/original/File%202020-09-09%2010%2025%2051.jpeg?1599614981" class="editor-image img-responsive" data-smartkarma-image-id="157917"></figure>Also, the Sector is highly fragmented and segmented by type of food and concept. Only nineteen companies can be deemed 'diversified'. Furthermore, there are only five listed take-out/delivery specialists, of which <a href="https://www.smartkarma.com/entities/ride-on-express-co-ltd" target="_blank" data-smartkarma-citation="entities:2812:1" rel="noopener">Ride On Express (6082 JP)</a> has been the best performer. Overall, the Sector has declined by 3.6% over one year and by 3.2% over three months - a third quartile performance. Colowide's 31% rise over the last month has pushed the Sector into fourth place amongst our thirty market Sectors, fueled by the apparent success of the tender offer for <a href="https://www.smartkarma.com/entities/ootoya-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:7329:1" rel="noopener">OOTOYA (2705 JP)</a>.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/157/928/original/2020-09-09_10-38-37.png?1599615530" class="editor-image img-responsive" data-smartkarma-image-id="157928"></figure>YUTAI KEN - One important consideration for investors to note is the widespread practice of offering kabunushi yutai-ken. In addition to dividends, shareholders are sent coupons that can be redeemed at most of the company's restaurants. Many specialist publications review such programs and offer stock recommendations based on the yutai-yield. As a result, restaurant companies in Japan have some of the highest shareholder counts among listed companies. As coupon-customers normally top-up their spending, this practice helps provide a basic level of cash flow but is a costly exercise to administer. However, there is the added benefit of limiting the number of shares for shorting.<a href="https://www.smartkarma.com/entities/yoshinoya-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:14630:1" rel="noopener"></a>100,000+ CLUB - <a href="https://www.smartkarma.com/entities/yoshinoya-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:14630:1" rel="noopener">Yoshinoya (9861 JP)</a>, <a href="https://www.smartkarma.com/entities/atom-corp" target="_blank" data-smartkarma-citation="entities:12420:1" rel="noopener">Atom (7412 JP)</a>, <a href="https://www.smartkarma.com/entities/zensho-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:4586:1" rel="noopener">Zensho (7550 JP)</a>, <a href="https://www.smartkarma.com/entities/kappa-create-co-ltd" target="_blank" data-smartkarma-citation="entities:19456:1" rel="noopener">Kappa Create (7421 JP)</a>, <a href="https://www.smartkarma.com/entities/komeda-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:24019:1" rel="noopener">Komeda (3543 JP)</a>, and <a href="https://www.smartkarma.com/entities/create-restaurants-holdings-inc" target="_blank" data-smartkarma-citation="entities:11513:1" rel="noopener">create (3387 JP)</a> are all in the top-fifty listed companies ranked by the number of shareholders. All exceed 100,000 shareholders -  beef-bowl chain Yoshiniya has 308,265 exceeding <a href="https://www.smartkarma.com/entities/mitsui-co-ltd" target="_blank" data-smartkarma-citation="entities:20799:1" rel="noopener">Mitsui (8031 JP)</a> which has twenty-four times the capitalisation.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/157/942/original/2020-09-09_11-15-31.png?1599617746" class="editor-image img-responsive" data-smartkarma-image-id="157942"></figure>In this DETAIL below, we shall review Colowide's long-term performance, returns and valuation and offer a view on the prospects for further consolidation. The Colowide group currently comprises of two listed chains - <a href="https://www.smartkarma.com/entities/kappa-create-co-ltd" target="_blank" data-smartkarma-citation="entities:19456:1" rel="noopener">Kappa Create (7421 JP)</a> and <a href="https://www.smartkarma.com/entities/atom-corp" target="_blank" data-smartkarma-citation="entities:12420:1" rel="noopener">Atom (7412 JP)</a> and the franchise chain Reins International which also operates in Asia and the US.

Source for all charts: Japan AnalyticsLISTED RESTAURANTS - Japan currently has 102 listed restaurant companies with an aggregate market value of ¥4.9 trillion, representing 2.6% of all listed companies and 0.9% of total market value. Only thirteen companies are capitalised at over ¥100 billion, and forty-one have a market value of less than ¥10 billion. The Sector is ripe for consolidation and COVID-19 should provide a catalyst for an acceleration of the process.  Both create restaurants (3387 JP), and Colowide (7616 JP) have positioned themselves as consolidators, but have become highly leveraged in the process.Also, the Sector is highly fragmented and segmented by type of food and concept. Only nineteen companies can be deemed 'diversified'. Furthermore, there are only five listed take-out/delivery specialists, of which Ride On Express (6082 JP) has been the best performer. Overall, the Sector has declined by 3.6% over one year and by 3.2% over three months - a third quartile performance. Colowide's 31% rise over the last month has pushed the Sector into fourth place amongst our thirty market Sectors, fueled by the apparent success of the tender offer for OOTOYA (2705 JP).YUTAI KEN - One important consideration for investors to note is the widespread practice of offering kabunushi yutai-ken. In addition to dividends, shareholders are sent coupons that can be redeemed at most of the company's restaurants. Many specialist publications review such programs and offer stock recommendations based on the yutai-yield. As a result, restaurant companies in Japan have some of the highest shareholder counts among listed companies. As coupon-customers normally top-up their spending, this practice helps provide a basic level of cash flow but is a costly exercise to administer. However, there is the added benefit of limiting the number of shares for shorting.100,000+ CLUB - Yoshinoya (9861 JP), Atom (7412 JP), Zensho (7550 JP), Kappa Create (7421 JP), Komeda (3543 JP), and create (3387 JP) are all in the top-fifty listed companies ranked by the number of shareholders. All exceed 100,000 shareholders -  beef-bowl chain Yoshiniya has 308,265 exceeding Mitsui (8031 JP) which has twenty-four times the capitalisation.In this DETAIL below, we shall review Colowide's long-term performance, returns and valuation and offer a view on the prospects for further consolidation. The Colowide group currently comprises of two listed chains - Kappa Create (7421 JP) and Atom (7412 JP) and the franchise chain Reins International which also operates in Asia and the US.

🇯🇵 Japan • Colowide (7616 JP) - A Bite Too Far

Yesterday after the close, as the Tender Offer for <a href="https://www.smartkarma.com/entities/ootoya-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:7329:1" rel="noopener">OOTOYA Holdings (2705 JP)</a> (<a href="https://www.ootoya.jp/common/pdf/corporate_profile.pdf" target="_blank" rel="noopener">corporate profile in English</a>) was drawing to a close (and as it had already gone ex-), <a href="https://www.smartkarma.com/entities/colowide-co-ltd" target="_blank" data-smartkarma-citation="entities:13967:1" rel="noopener">Colowide Co Ltd (7616 JP)</a> announced amendments to terms which both extended the Tender Offer from its close yesterday to 8 September, and more importantly, lowered the minimum number of shares required for success to 1.51mm shares from 1.872mm shares prior. The extension itself would have been an indication that they weren't going to get the shares they wanted at first crack. The fact that the minimum has been lowered is a reason to understand that they think it will be difficult to get there in any case. The change in the minimum a reduction of 19% of that number and sets their minimum target shareholding to exactly 40.00% rather than 45.00%. This makes it slightly more difficult to "control" Ootoya if they get to the minimum but no more, but if necessary to get anywhere near a chunky non-majority piece, the fact that they felt they needed to lower it tells you about the loyalty of existing shareholders. Ootoya shares responded by climbing 9.4% today to ¥2,954 apiece. As I <a href="https://www.smartkarma.com/insights/colowide-partial-tender-for-ootoya-is-a-sell" target="_blank" rel="noopener">said</a> on 12 July when the shares traded ¥3,050-3,115, those who had shares should sell. Those who could borrow should short. It wasn't worth waiting for the Tender Offer. It is not clear why that advice does not still stand, but below I go through the numbers.

Yesterday after the close, as the Tender Offer for OOTOYA Holdings (2705 JP) (corporate profile in English) was drawing to a close (and as it had already gone ex-), Colowide Co Ltd (7616 JP) announced amendments to terms which both extended the Tender Offer from its close yesterday to 8 September, and more importantly, lowered the minimum number of shares required for success to 1.51mm shares from 1.872mm shares prior. The extension itself would have been an indication that they weren't going to get the shares they wanted at first crack. The fact that the minimum has been lowered is a reason to understand that they think it will be difficult to get there in any case. The change in the minimum a reduction of 19% of that number and sets their minimum target shareholding to exactly 40.00% rather than 45.00%. This makes it slightly more difficult to "control" Ootoya if they get to the minimum but no more, but if necessary to get anywhere near a chunky non-majority piece, the fact that they felt they needed to lower it tells you about the loyalty of existing shareholders. Ootoya shares responded by climbing 9.4% today to ¥2,954 apiece. As I said on 12 July when the shares traded ¥3,050-3,115, those who had shares should sell. Those who could borrow should short. It wasn't worth waiting for the Tender Offer. It is not clear why that advice does not still stand, but below I go through the numbers.

Ootoya Tender Offer - Still Tough, Still a Sell

Japan

OOTOYA, Holdings Co., Ltd. operates a restaurant chain which serves Japanese set meals.  The Company operates its own restaurants based in Kanto.

OOTOYA Holdings (2705 JP)

Ootoya - Watch Out For Upside on New Yutai Policy

Ootoya fell sharply after the Tender Offer by Colowide. A new kabunushi yutai policy raises the effective dividend yield substantially. This should...

Travis Lundy

Oisix Thrives in Crisis, Ties with Ootoya

Oisix Ra Daichi is a quality brand in a nascent market: online food retailing where e-commerce has less than 3% share. It is a huge prize and...

Michael Causton

Last Week in Event SPACE: Vedanta, Cardinal Res., Japan Retail Fund, HSBC, Opticomm, Tiffany/LVMH

Last Week in Event SPACE ... Plus, other events, CCASS movements and Mood Spins. (This insight covers specific insights & comments...

David Blennerhassett

🇯🇵 Japan • Colowide (7616 JP) - A Bite Too Far

LISTED RESTAURANTS

Campbell Gunn

Ootoya Tender Offer - Still Tough, Still a Sell

Yesterday after the close, as the Tender Offer for OOTOYA Holdings (2705 JP) (corporate profile in English) was drawing to a close (and as it had...

Travis Lundy