Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>A couple of minutes before the AM session close yesterday, the Nikkei Inc released a <a href="https://www.nikkei.com/article/DGXMZO48537880U9A810C1I00000/" target="_blank" rel="noopener">story</a> saying that the Special Committee formed to help <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> management decide whether to enter merger talks 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> (commonly known as "MatsuKiyo") or with <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> has decided to go with MatsuKiyo. The cocokara Board of Directors looked at the same information and inputs, and they agreed with the panel that the synergy effect was greater if they joined with MatsumotoKiyoshi. cocokara shares immediately popped 9.5% before settling +6.9% at lunch. MatsuKiyo popped as well.  </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/095/696/original/Screenshot%202019-08-14%20at%205.16.51%20PM.png?1565774282" class="editor-image img-responsive" data-smartkarma-image-id="95696"></figure><div class="content-caption">source: tradingview.com, Quiddity</div><p>Over the lunch break, cocokara fine released a <a href="https://corp.cocokarafine.co.jp/news/pdf/20190814_TD01.pdf" target="_blank" rel="noopener">statement</a> (Japanese only for now; English will be in the Discussion Posts below if it comes) saying similar, and that they would enter <em>exclusive</em> negotiations with Matsumoto Kiyoshi on joining, with an eye to concluding a basic agreement, followed by a final agreement. When the market opened in the afternoon, both fell, then both slowly rose back into the end of the day. cocokara ended up 1.3%; Matsukiyo fell 2.2% on the day. The share price ratio closed at 1.689.</p><p>The panel convened in mid-June to study the matter looked at product policy, store opening areas, the organizational structure of the two enterprises, and decided that the synergy effects with MatsuKiyo were significant. Apparently MatsuKiyo submitted two proposals - capital tie-up as first envisaged earlier in April and "management integration" (which means a full joining (merger or holdco)).</p><p>On a pro-forma basis (using end-March numbers), the combination would run 3,008 stores and have almost ¥1 trillion in sales (¥976.4bn in FY18) against the current number one and number two <a href="https://www.smartkarma.com/entities/welcia-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:20895:1" rel="noopener">Welcia Holdings (3141 JP)</a> and <a href="https://www.smartkarma.com/entities/tsuruha-holdings-inc" target="_blank" data-smartkarma-citation="entities:9536:1" rel="noopener">Tsuruha Holdings (3391 JP)</a> with ¥670-695 billion in segment sales each this past year. </p><p>This comes as something of a surprise. I thought Sugi would end up being the preferred partner for reasons of culture, overlap (lack thereof), and Cocokara's desire to get into healthcare services, where Sugi already has a tie-up with <a href="https://www.smartkarma.com/entities/medpeer-inc" target="_blank" data-smartkarma-citation="entities:4090:1" rel="noopener">Medpeer Inc (6095 JP)</a>. I also figured Sugi might offer better terms. </p><p>I would note that this is still not a done deal. Usually, two firms will talk informally, then the boards will decide management teams should talk formally after the ground has been broken. In this case the informal talks to understand synergy and culture appear not to have been completed before we got to the Independent Committee so in this case the parents have decided which potential spouse is better before the kids have done the speed dating.</p><p>A full discussion is below the fold.</p><hr><p> For more on this subject, see my previous piece <a href="https://www.smartkarma.com/insights/cocokara-fine-cocokara" target="_blank" data-smartkarma-citation="insights:30197" rel="noopener">Cocokara Fine は Cocokara いいね*</a> and <a href="https://www.smartkarma.com/profiles/michael-causton" target="_blank" data-smartkarma-citation="accounts:2415" rel="noopener">Michael Causton</a>'s excellent and informative pieces on the deal and the sector <a href="https://www.smartkarma.com/insights/matsukiyo-and-cocokara-fine-tie-to-shake-up-drugstore-sector" target="_blank" data-smartkarma-citation="insights:29890" rel="noopener">Matsukiyo and Cocokara Fine Tie to Shake up Drugstore Sector</a>, <a href="https://www.smartkarma.com/insights/japan-drugstores-set-to-expand-further" target="_blank" data-smartkarma-citation="insights:28119" rel="noopener">Japan Drugstores Set to Expand Further</a>, and <a href="https://www.smartkarma.com/insights/drug-fuelled-marriages-and-macho-shachos-in-japan" target="_blank" data-smartkarma-citation="insights:30346" rel="noopener">Drug-Fuelled Marriages and Macho Shachos* in Japan</a>. Furthermore, two of his recent big picture pieces <a href="https://www.smartkarma.com/insights/japanese-retailing-the-big-disruption-and-opportunity-in-the-next-5-years" target="_blank" data-smartkarma-citation="insights:30770" rel="noopener">Japanese Retailing: The Big Disruption – and Opportunity – in the Next 5 Years</a> and <a href="https://www.smartkarma.com/insights/winners-and-losers-in-japanese-retailing-in-the-next-5-10-years" target="_blank" data-smartkarma-citation="insights:30771" rel="noopener">Winners and Losers in Japanese Retailing in the Next 5-10 Years</a> are excellent backdrop, with the latter providing the SWOTs for the sector.</p><p><em>For more information on Japanese Tender Offers and M&amp;A - how they work and how they unfold - please refer to the <a href="https://www.smartkarma.com/insights/quiddity-japan-m-a-guide-2019" target="_blank" rel="noopener">Quiddity Japan M&amp;A Guide</a>.</em></p>

A couple of minutes before the AM session close yesterday, the Nikkei Inc released a story saying that the Special Committee formed to help cocokara Fine (3098 JP) management decide whether to enter merger talks with Matsumotokiyoshi Holdings Co (3088 JP) (commonly known as "MatsuKiyo") or with Sugi Holdings (7649 JP) has decided to go with MatsuKiyo. The cocokara Board of Directors looked at the same information and inputs, and they agreed with the panel that the synergy effect was greater if they joined with MatsumotoKiyoshi. cocokara shares immediately popped 9.5% before settling +6.9% at lunch. MatsuKiyo popped as well.  source: tradingview.com, QuiddityOver the lunch break, cocokara fine released a statement (Japanese only for now; English will be in the Discussion Posts below if it comes) saying similar, and that they would enter exclusive negotiations with Matsumoto Kiyoshi on joining, with an eye to concluding a basic agreement, followed by a final agreement. When the market opened in the afternoon, both fell, then both slowly rose back into the end of the day. cocokara ended up 1.3%; Matsukiyo fell 2.2% on the day. The share price ratio closed at 1.689.The panel convened in mid-June to study the matter looked at product policy, store opening areas, the organizational structure of the two enterprises, and decided that the synergy effects with MatsuKiyo were significant. Apparently MatsuKiyo submitted two proposals - capital tie-up as first envisaged earlier in April and "management integration" (which means a full joining (merger or holdco)).On a pro-forma basis (using end-March numbers), the combination would run 3,008 stores and have almost ¥1 trillion in sales (¥976.4bn in FY18) against the current number one and number two Welcia Holdings (3141 JP) and Tsuruha Holdings (3391 JP) with ¥670-695 billion in segment sales each this past year. This comes as something of a surprise. I thought Sugi would end up being the preferred partner for reasons of culture, overlap (lack thereof), and Cocokara's desire to get into healthcare services, where Sugi already has a tie-up with Medpeer Inc (6095 JP). I also figured Sugi might offer better terms. I would note that this is still not a done deal. Usually, two firms will talk informally, then the boards will decide management teams should talk formally after the ground has been broken. In this case the informal talks to understand synergy and culture appear not to have been completed before we got to the Independent Committee so in this case the parents have decided which potential spouse is better before the kids have done the speed dating.A full discussion is below the fold. For more on this subject, see my previous piece Cocokara Fine は Cocokara いいね* and Michael Causton's excellent and informative pieces on the deal and the sector Matsukiyo and Cocokara Fine Tie to Shake up Drugstore Sector, Japan Drugstores Set to Expand Further, and Drug-Fuelled Marriages and Macho Shachos* in Japan. Furthermore, two of his recent big picture pieces Japanese Retailing: The Big Disruption – and Opportunity – in the Next 5 Years and Winners and Losers in Japanese Retailing in the Next 5-10 Years are excellent backdrop, with the latter providing the SWOTs for the sector.For more information on Japanese Tender Offers and M&amp;A - how they work and how they unfold - please refer to the Quiddity Japan M&amp;A Guide.

Cocokara (3098) Going With MatsuKiyo (3088) But Ratio Overextended

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

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. 

Quantitative Analysis

<div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/093/001/original/2019-07-13_16-16-31.png?1563002212" class="editor-image img-responsive" data-smartkarma-image-id="93001"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/093/005/original/2019-07-13_16-25-24.png?1563002742" class="editor-image img-responsive" data-smartkarma-image-id="93005"></figure><p>Source: Japan Analytics</p>
</div><p><strong>MOVING AVERAGE BREAKOUT</strong> - Japanese equities have now risen by 5.1% since the low of 4th June and, since July 1st, the Total Market Value has exceeded the 50-Day Moving Average for the first time since 26th April. Over the last two weeks, the Total Market Value has gained 1.7% in both Yen and US dollar times. For the previous twelve months, the equity market has moved in line with the US dollar/Japanese Yen exchange rate. It remains to be seen how the 'gap' that has opened up in the last month will be closed. Any further strength in the Yen from current levels will likely see the market slip below the 50-Day Moving Average again.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/093/020/original/2019-07-14_06-28-16.png?1563053334" class="editor-image img-responsive" data-smartkarma-image-id="93020"></figure><p></p><div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/093/024/original/2019-07-14_06-45-29.png?1563054338" class="editor-image img-responsive" data-smartkarma-image-id="93024"></figure><p></p> Source: Japan Analytics</div><p><strong>VALUE TRADED RATIO </strong>- The Value Traded Ratio (Value Traded/Total Market Value) has seen two new eighteen-month lows. If the three days around Christmas are excluded, the current apathy towards Japanese equities is the most extreme since 2012 and is confirmed by recent BAML investor surveys. In the past, such periods of inactivity (marked"▲"above)  have preceded changes in market direction, more often upwards rather than downwards and suggest the current rally has more 'legs'. </p><div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/093/025/original/2019-07-14_06-47-40.png?1563054585" class="editor-image img-responsive" data-smartkarma-image-id="93025"></figure><p></p> Source: Japan Analytics</div><p><strong>TORAKU INDEX </strong>- Conversely, the Toraku advance/decline index is suggesting a degree of caution having breached the 120 'overbought' line for only the third time in eighteen months. Combining this analysis with the Value Traded Ratio, there is scope for a short-term upward move akin to that of October 2018 to be followed by a sharper downward trend into the autumn.  </p><div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/093/026/original/2019-07-14_06-54-51.png?1563054906" class="editor-image img-responsive" data-smartkarma-image-id="93026"></figure><p></p> Source: Japan Analytics</div><p><strong>VOLUME SCORE TIMELINE</strong> - The lull in market turnover is confirmed in the greener 'bias' in our Sector volume timeline. The <strong>Retail</strong> and <strong>Restaurant</strong> Sectors are hot as we are in the middle of the quarterly results announcements for February/May/August/November year-end companies. <strong>REITs</strong> remain the 'go-to' defensive Sector while the <strong>Information Technology</strong> and <strong>Internet</strong> Sectors are the '<em>tema-du-jour</em>' - to mix language metaphors. The 'untouchables' are <strong>Metals</strong>, <strong>Banks</strong>, <strong>Utilities</strong><strong>Transportation</strong>,  and <strong>Multi-Industry</strong>.</p><div class="content-caption">
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/093/028/original/2019-07-14_07-31-40.png?1563057109" class="editor-image img-responsive" data-smartkarma-image-id="93028"></figure><p></p> Source: Japan Analytics</div><p><strong>3-MONTH SECTOR CONTRIBUTION</strong> - Over the last three months, a long Telcos/short Autos strategy would have yielded 82 basis points of performance. The <strong>Retail</strong> Sector has responded well to the results released so far led by drugstores <a href="https://www.smartkarma.com/entities/welcia-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:20895:1" rel="noopener">Welcia (3141 JP)</a> and <a href="https://www.smartkarma.com/entities/tsuruha-holdings-inc" target="_blank" data-smartkarma-citation="entities:9536:1" rel="noopener">Tsuruha (3391 JP), </a><a href="https://www.smartkarma.com/entities/fast-retailing-co-ltd" target="_blank" data-smartkarma-citation="entities:751:1" rel="noopener">Fast Retailing (9983 JP)</a><a href="https://www.smartkarma.com/entities/tsuruha-holdings-inc" target="_blank" data-smartkarma-citation="entities:9536:1" rel="noopener">, and </a><a href="https://www.smartkarma.com/entities/lawson-inc" target="_blank" data-smartkarma-citation="entities:1040:1" rel="noopener">Lawson (2651 JP)</a>. <strong>Electrical Equipment</strong> has suffered from weakness in component stocks <a href="https://www.smartkarma.com/entities/alps-alpine-co-ltd" target="_blank" data-smartkarma-citation="entities:12001:1" rel="noopener">Alps Alpine (6770 JP)</a> (-38% over one year), <a href="https://www.smartkarma.com/entities/murata-manufacturing-co-ltd" target="_blank" data-smartkarma-citation="entities:11649:1" rel="noopener">Murata (6981 JP)</a> (see <a href="https://www.smartkarma.com/profiles/scott-foster" target="_blank" data-smartkarma-citation="accounts:1134" rel="noopener">Scott Foster</a>'s <a href="https://www.smartkarma.com/insights/murata-mfg-6981-jp-buy-on-decline-for-the-long-term" target="_blank" data-smartkarma-citation="insights:30919" rel="noopener">(Buy on Decline for the Long Term</a>), and <a href="https://www.smartkarma.com/entities/taiyo-yuden-co-ltd" target="_blank" data-smartkarma-citation="entities:9924:1" rel="noopener">Taiyo Yuden (6976 JP)</a>, while <a href="https://www.smartkarma.com/entities/smc-corp" target="_blank" data-smartkarma-citation="entities:20866:1" rel="noopener">SMC (6273 JP)</a>, <a href="https://www.smartkarma.com/entities/fanuc-corp" target="_blank" data-smartkarma-citation="entities:752:1" rel="noopener">Fanuc (6954 JP)</a>, and <a href="https://www.smartkarma.com/entities/komatsu-ltd" target="_blank" data-smartkarma-citation="entities:8416:1" rel="noopener">Komatsu (6301 JP)</a> have weighed on the <strong>Machinery</strong> Sector.</p><div class="content-caption">
<figure class="editor-figure mceNonEditable"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/093/031/original/2019-07-14_07-44-47.png?1563057897" class="editor-image img-responsive" data-smartkarma-image-id="93031"></figure><p></p></figure> Source: Japan Analytics</div><p><strong>SECTOR SCORE MATRIX - </strong>Arranging our cap-weighted Sector Relative Price Scores and Results &amp; Revisions Scores in a four-quadrant matrix whose extremes are <strong>Contrarian Sel</strong>l, <strong>Contrarian Buy</strong>, <strong>Unrequited Growth</strong>, and <strong>Ex-Growth</strong> suggest profit-taking in Information Technology (<a href="https://www.smartkarma.com/entities/obic-co-ltd" target="_blank" data-smartkarma-citation="entities:1273:1" rel="noopener">OBIC (4684 JP)</a>, Other Commerical Products (<a href="https://www.smartkarma.com/entities/hoya-corp" target="_blank" data-smartkarma-citation="entities:8990:1" rel="noopener">Hoya Corp (7741 JP)</a>, and Commercial Services (<a href="https://www.smartkarma.com/entities/recruit-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:15070:1" rel="noopener">Recruit 6098 JP).</a> We are not contrarian enough to fall into the banking 'trap', however, the Metals Sector may offer some 'crumbs' of comfort for those in need of a deep value 'fix' (<a href="https://www.smartkarma.com/entities/nippon-steel-sumitomo-metal-corp" target="_blank" data-smartkarma-citation="entities:961:1" rel="noopener">Nippon Steel &amp; Sumitomo Metal (5401 JP)</a>) </p><div class="content-highlight"><p>In the <strong>DETAIL</strong> section below, we will review Sector performance, scores and valuation in more detail, as well as Company Results &amp; Revisions and individual stock performance over the previous two weeks, as well as adding some brief comments on <a href="https://www.smartkarma.com/entities/welcia-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:20895:1" rel="noopener">Welcia (3141 JP)</a>, <a href="https://www.smartkarma.com/entities/daiseki-co-ltd" target="_blank" data-smartkarma-citation="entities:2330:1" rel="noopener">Daiseki (9793 JP), </a><a href="https://www.smartkarma.com/entities/yaskawa-electric-corp" target="_blank" data-smartkarma-citation="entities:2458:1" rel="noopener">Yaskawa Electric (6506 JP), </a><a href="https://www.smartkarma.com/entities/pola-orbis-holdings-inc" target="_blank" data-smartkarma-citation="entities:2287:1" rel="noopener">Pola Orbis (4927 JP)</a>, <a href="https://www.smartkarma.com/entities/sekisui-house-ltd" target="_blank" data-smartkarma-citation="entities:4508:1" rel="noopener">Sekisui House (1928 JP)</a>, <a href="https://www.smartkarma.com/entities/keyence-corp" target="_blank" data-smartkarma-citation="entities:3077:1" rel="noopener">Keyence (6861 JP)</a>, <a href="https://www.smartkarma.com/entities/japan-post-insurance-co-ltd" target="_blank" data-smartkarma-citation="entities:840:1" rel="noopener">Japan Post Insurance (7181 JP)</a>, and <a href="https://www.smartkarma.com/entities/obic-co-ltd" target="_blank" data-smartkarma-citation="entities:1273:1" rel="noopener">Obic (4684 JP)</a>.</p></div>


Source: Japan Analytics
MOVING AVERAGE BREAKOUT - Japanese equities have now risen by 5.1% since the low of 4th June and, since July 1st, the Total Market Value has exceeded the 50-Day Moving Average for the first time since 26th April. Over the last two weeks, the Total Market Value has gained 1.7% in both Yen and US dollar times. For the previous twelve months, the equity market has moved in line with the US dollar/Japanese Yen exchange rate. It remains to be seen how the 'gap' that has opened up in the last month will be closed. Any further strength in the Yen from current levels will likely see the market slip below the 50-Day Moving Average again.
 Source: Japan AnalyticsVALUE TRADED RATIO - The Value Traded Ratio (Value Traded/Total Market Value) has seen two new eighteen-month lows. If the three days around Christmas are excluded, the current apathy towards Japanese equities is the most extreme since 2012 and is confirmed by recent BAML investor surveys. In the past, such periods of inactivity (marked"▲"above)  have preceded changes in market direction, more often upwards rather than downwards and suggest the current rally has more 'legs'. 
 Source: Japan AnalyticsTORAKU INDEX - Conversely, the Toraku advance/decline index is suggesting a degree of caution having breached the 120 'overbought' line for only the third time in eighteen months. Combining this analysis with the Value Traded Ratio, there is scope for a short-term upward move akin to that of October 2018 to be followed by a sharper downward trend into the autumn.  
 Source: Japan AnalyticsVOLUME SCORE TIMELINE - The lull in market turnover is confirmed in the greener 'bias' in our Sector volume timeline. The Retail and Restaurant Sectors are hot as we are in the middle of the quarterly results announcements for February/May/August/November year-end companies. REITs remain the 'go-to' defensive Sector while the Information Technology and Internet Sectors are the 'tema-du-jour' - to mix language metaphors. The 'untouchables' are Metals, Banks, UtilitiesTransportation,  and Multi-Industry.
 Source: Japan Analytics3-MONTH SECTOR CONTRIBUTION - Over the last three months, a long Telcos/short Autos strategy would have yielded 82 basis points of performance. The Retail Sector has responded well to the results released so far led by drugstores Welcia (3141 JP) and Tsuruha (3391 JP), Fast Retailing (9983 JP), and Lawson (2651 JP). Electrical Equipment has suffered from weakness in component stocks Alps Alpine (6770 JP) (-38% over one year), Murata (6981 JP) (see Scott Foster's (Buy on Decline for the Long Term), and Taiyo Yuden (6976 JP), while SMC (6273 JP), Fanuc (6954 JP), and Komatsu (6301 JP) have weighed on the Machinery Sector.
 Source: Japan AnalyticsSECTOR SCORE MATRIX - Arranging our cap-weighted Sector Relative Price Scores and Results &amp; Revisions Scores in a four-quadrant matrix whose extremes are Contrarian Sell, Contrarian Buy, Unrequited Growth, and Ex-Growth suggest profit-taking in Information Technology (OBIC (4684 JP), Other Commerical Products (Hoya Corp (7741 JP), and Commercial Services (Recruit 6098 JP). We are not contrarian enough to fall into the banking 'trap', however, the Metals Sector may offer some 'crumbs' of comfort for those in need of a deep value 'fix' (Nippon Steel &amp; Sumitomo Metal (5401 JP)) In the DETAIL section below, we will review Sector performance, scores and valuation in more detail, as well as Company Results &amp; Revisions and individual stock performance over the previous two weeks, as well as adding some brief comments on Welcia (3141 JP), Daiseki (9793 JP), Yaskawa Electric (6506 JP), Pola Orbis (4927 JP), Sekisui House (1928 JP), Keyence (6861 JP), Japan Post Insurance (7181 JP), and Obic (4684 JP).

🇯🇵 JAPAN • Market Update - Levitating on Thin Air

<p>Five weeks ago at the end of April just before Golden Week, specialty drugstore retailers <a href="https://www.smartkarma.com/entities/cocokara-fine-inc" target="_blank" data-smartkarma-citation="entities:15447:1">Cocokara Fine (3098 JP)</a> (#7 in sales) and <a href="https://www.smartkarma.com/entities/matsumotokiyoshi-holdings-co" target="_blank" data-smartkarma-citation="entities:2259:1">Matsumotokiyoshi Holdings Co (3088 JP)</a> (#4 or #5 in sales) announced the start of talks aimed at the possible merger of drugstore operations to become the largest drugstore operator in Japan with pro-forma net revenues of ~¥975bn annually (beating leader <a href="https://www.smartkarma.com/entities/welcia-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:20895:1">Welcia Holdings (3141 JP)</a>'s ¥780bn, with an eventual capital merger possible. Talks were set to conclude by September.</p><p><a href="https://www.smartkarma.com/profiles/michael-causton" target="_blank" data-smartkarma-citation="accounts:2415">Michael Causton</a>, as is his wont, wrote about the possible tie-up a couple of weeks ago in <a href="https://www.smartkarma.com/insights/matsukiyo-and-cocokara-fine-tie-to-shake-up-drugstore-sector" target="_blank" data-smartkarma-citation="insights:29890">Matsukiyo and Cocokara Fine Tie to Shake up Drugstore Sector</a>. It is worth a read. For a long time, the drugstore sector was the darling of foreign investors because of decent top line growth but post-GFC the industry slowed down for several years before jumping in Fiscal Years 2016 and 2017 (ending in early 2018 in most cases) but he thinks the sector still has growth (see <a href="https://www.smartkarma.com/insights/japan-drugstores-set-to-expand-further" target="_blank" data-smartkarma-citation="insights:28119">Japan Drugstores Set to Expand Further</a>).  </p><p>His conclusion? </p><blockquote><p>Drugstore retailing today is unrecognisable compared to 10 years ago and the speed of change and development is now set to accelerate even further, with M&amp;A a key strategy.</p></blockquote><h2>The New News</h2><p>Over the weekend, Sector #6 <a href="https://www.smartkarma.com/entities/sugi-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:9255:1">Sugi Holdings (7649 JP)</a> announced that it had agreed to enter business integration talks with Cocokara Fine over the weekend with the aim to conclude talks by the end of July - at least a month ahead of when the talks between Matsukiyo and Cocokara were scheduled to end. It turns out the announcement between Matsukiyo and Cocokara turned some heads in the industry and Sugi Holdings approached Cocokara just a couple of days later. </p><p>Interestingly - and highly unusual for Japan - Matsukiyo <a href="https://www.matsumotokiyoshi-hd.co.jp/news/data/7aab7e719783f4e1f894dee904e74820.pdf" target="_blank">said</a> (Japanese-only) today that it was going to continue to negotiate. </p><p>This makes it a situation where there are two strategic acquirors for one asset (Cocokara) and they are both "friendly." This is practically unheard of in Japan. </p><p>This sets up a competitive bidding situation for Cocokara which is worthwhile thinking about.</p><hr><div class="content-remarks"><p>*With apologies to non-Japanese readers, the title is a pun playing on the origins of the company name and the English and Japanese treatment of "fine" and good.</p></div>

Five weeks ago at the end of April just before Golden Week, specialty drugstore retailers Cocokara Fine (3098 JP) (#7 in sales) and Matsumotokiyoshi Holdings Co (3088 JP) (#4 or #5 in sales) announced the start of talks aimed at the possible merger of drugstore operations to become the largest drugstore operator in Japan with pro-forma net revenues of ~¥975bn annually (beating leader Welcia Holdings (3141 JP)'s ¥780bn, with an eventual capital merger possible. Talks were set to conclude by September.Michael Causton, as is his wont, wrote about the possible tie-up a couple of weeks ago in Matsukiyo and Cocokara Fine Tie to Shake up Drugstore Sector. It is worth a read. For a long time, the drugstore sector was the darling of foreign investors because of decent top line growth but post-GFC the industry slowed down for several years before jumping in Fiscal Years 2016 and 2017 (ending in early 2018 in most cases) but he thinks the sector still has growth (see Japan Drugstores Set to Expand Further).  His conclusion? Drugstore retailing today is unrecognisable compared to 10 years ago and the speed of change and development is now set to accelerate even further, with M&amp;A a key strategy.The New NewsOver the weekend, Sector #6 Sugi Holdings (7649 JP) announced that it had agreed to enter business integration talks with Cocokara Fine over the weekend with the aim to conclude talks by the end of July - at least a month ahead of when the talks between Matsukiyo and Cocokara were scheduled to end. It turns out the announcement between Matsukiyo and Cocokara turned some heads in the industry and Sugi Holdings approached Cocokara just a couple of days later. Interestingly - and highly unusual for Japan - Matsukiyo said (Japanese-only) today that it was going to continue to negotiate. This makes it a situation where there are two strategic acquirors for one asset (Cocokara) and they are both "friendly." This is practically unheard of in Japan. This sets up a competitive bidding situation for Cocokara which is worthwhile thinking about.*With apologies to non-Japanese readers, the title is a pun playing on the origins of the company name and the English and Japanese treatment of "fine" and good.

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

<p>Two of the country’s largest mass market drugstore operators announced talks about a new tie-up last month. If it happens, <a href="https://www.smartkarma.com/entities/2259" target="_blank" data-smartkarma-citation="entities:2259:1">Matsumotokiyoshi Holdings Co (3088 JP)</a> and <a href="https://www.smartkarma.com/entities/15447" target="_blank" data-smartkarma-citation="entities:15447:1">Cocokara Fine (3098 JP)</a> will jointly run <strong>a drugstore operation more than a third larger than any current rival</strong>.</p>
<p>In this fast developing sector, such a move will not be taken lying down by rivals and could well stimulate a rush of similar tie-ups over the next year.</p>

Two of the country’s largest mass market drugstore operators announced talks about a new tie-up last month. If it happens, Matsumotokiyoshi Holdings Co (3088 JP) and Cocokara Fine (3098 JP) will jointly run a drugstore operation more than a third larger than any current rival.
In this fast developing sector, such a move will not be taken lying down by rivals and could well stimulate a rush of similar tie-ups over the next year.

Matsukiyo and Cocokara Fine Tie to Shake up Drugstore Sector

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/085/347/original/2019-04-20_09-59-40.png?1555722056" class="editor-image img-responsive" data-smartkarma-image-id="85347"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>UnCh</strong> - Japanese equities are unchanged in US dollar terms over both three and six months. The Bank of Japan has intervened on 42 of the 121 trading days since October 22nd or an average of 1.6 times a week as foreigners remain underweight. As corporate results and macro data continue to disappoint, the outlook for the market is muted ahead of the upcoming ten-day holiday which combines the traditional Golden Week holidays with the accession of the new Emperor and the beginning of the Reiwa era (令和時代).  </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/085/405/original/2019-04-21_07-28-03.png?1555799330" class="editor-image img-responsive" data-smartkarma-image-id="85405"></figure><div class="content-caption">Source: Investing.com</div><p><strong>CURRENCY RISK?</strong> - "UnCh" also applies to <a href="https://www.smartkarma.com/entities/22826" target="_blank" data-smartkarma-citation="entities:22826:1">JPY (USDJPY CURNCY)</a>  Implied volatility for 9-month USDJPY options reached a new 25-year low last week of 6.11. The previous two lows were in 2006 and 2015 and were followed by periods of sustained Yen strength. The equity market currently appears to be discounting precisely the opposite.   </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/085/350/original/2019-04-20_10-21-58.png?1555723331" class="editor-image img-responsive" data-smartkarma-image-id="85350"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>VTR</strong> - The ratio of the value of stocks traded to the total market value continues to decline. The average for 2019 is 11% below that for the same period last year and is unchanged at 39bps in each month year-to-date.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/085/381/original/2019-04-20_14-34-11.png?1555738458" class="editor-image img-responsive" data-smartkarma-image-id="85381"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>VOLUME SCORE TIMELINE</strong> - Volumes have been highest in the <strong>Internet</strong>, <strong>Retail</strong>, and<strong> Telecoms</strong> sectors, while the <strong>Materials</strong>,<strong> Transportation</strong>, <strong>Utilities</strong> and<strong> Real Estate</strong> Sectors have seen the lowest.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/085/352/original/2019-04-20_10-29-59.png?1555723806" class="editor-image img-responsive" data-smartkarma-image-id="85352"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>LOWS &gt; HIGHS</strong> - With a deficit of positive news at the individual company level, the number of new 52-week highs has exceeded the number of new 52-week lows on only one-third of the last 31 trading days. </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/085/363/original/2019-04-20_12-34-06.png?1555731278" class="editor-image img-responsive" data-smartkarma-image-id="85363"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>DRIFTING LOWER</strong> - TTM and Forecasts Aggregate Operating and Net Income continue to drift lower ahead of the full-year results for March year-end companies which are due in a more-concentrated-than-usual period either side of the long break.   </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/085/384/original/2019-04-20_17-30-47.png?1555749055" class="editor-image img-responsive" data-smartkarma-image-id="85384"></figure><div class="content-caption">Source: Japan Analytics <p></p>
</div><p><strong>MIND THE GAP</strong> - Based on our Scoring methodology for aggregate Results &amp; Revisions, the 'gap' between total market value and earnings momentum is now as wide as at the two previous 'peaks' in January 2018 and September 2018.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/085/435/original/File%202019-04-21%2015%2055%2018.jpeg?1555829876" class="editor-image img-responsive" data-smartkarma-image-id="85435"></figure><div class="content-caption">Source: Bank of America Merrill Lynch</div><p><strong>GLOBAL WAVE</strong> - The market is implying that the earnings cycle is close to a bottom which is in accord with BAML's Global Earnings Revision Ratio having ticked up last month for the first time in 14 months. BAML has yet to call a Trough in their Global Wave and, were they to do so, such a Trough would be the first above '50' since 2006.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/085/378/original/2019-04-20_14-00-43.png?1555736454" class="editor-image img-responsive" data-smartkarma-image-id="85378"></figure><p><strong>FORECASTS LEADING EARNINGS LOWER</strong> - Separating our the Results Score and the Forecast &amp; Revision Score, the latter is continuing to lead the former to the downside, although both Scores are in aggregate still positive. Reported earnings and forecasts are still growing year-on-year; however, the momentum is slowing rapidly.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/085/379/original/2019-04-20_14-04-23.png?1555736670" class="editor-image img-responsive" data-smartkarma-image-id="85379"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>INTERIM LEADING ANNUAL LOWER</strong> -  Between February and September in each year, there is a statistically significant number of Interim Forecasts that they can be compared to the Annual Forecasts with which they are combined to derive the score in the previous chart. Interim Forecasts are often prepared by the divisional heads are not accorded the same 'reverence' as the Annual Forecasts. As a result, the Interim numbers offer a good leading indicator of short-term trends. In recent weeks, the aggregate Interim Forecast/Revision Score has turned sharply lower and is now at the lowest point in almost two years.   </p><p>In the <strong>DETAIL</strong> section below, we will review Sector performance, company results, revisions and stock performance over the previous two weeks, as well as adding some brief comments on <a href="https://www.smartkarma.com/entities/14191" target="_blank" data-smartkarma-citation="entities:14191:1">Koshidaka (2157 JP)</a>, <a href="https://www.smartkarma.com/entities/2765" target="_blank" data-smartkarma-citation="entities:2765:1">Ryohin Keikaku (7453 JP)</a>, <strong>Drugstores</strong>, <a href="https://www.smartkarma.com/entities/237" target="_blank" data-smartkarma-citation="entities:237:1">Daiwa House (1925 JP)</a>, <strong>Toyota Parts companies</strong>, and <a href="https://www.smartkarma.com/entities/2" target="_blank" data-smartkarma-citation="entities:2:1">Yamato Holdings (9064 JP)</a>.</p>

Source: Japan AnalyticsUnCh - Japanese equities are unchanged in US dollar terms over both three and six months. The Bank of Japan has intervened on 42 of the 121 trading days since October 22nd or an average of 1.6 times a week as foreigners remain underweight. As corporate results and macro data continue to disappoint, the outlook for the market is muted ahead of the upcoming ten-day holiday which combines the traditional Golden Week holidays with the accession of the new Emperor and the beginning of the Reiwa era (令和時代).  Source: Investing.comCURRENCY RISK? - "UnCh" also applies to JPY (USDJPY CURNCY)  Implied volatility for 9-month USDJPY options reached a new 25-year low last week of 6.11. The previous two lows were in 2006 and 2015 and were followed by periods of sustained Yen strength. The equity market currently appears to be discounting precisely the opposite.   Source: Japan AnalyticsVTR - The ratio of the value of stocks traded to the total market value continues to decline. The average for 2019 is 11% below that for the same period last year and is unchanged at 39bps in each month year-to-date.Source: Japan AnalyticsVOLUME SCORE TIMELINE - Volumes have been highest in the Internet, Retail, and Telecoms sectors, while the Materials, Transportation, Utilities and Real Estate Sectors have seen the lowest.Source: Japan AnalyticsLOWS &gt; HIGHS - With a deficit of positive news at the individual company level, the number of new 52-week highs has exceeded the number of new 52-week lows on only one-third of the last 31 trading days. Source: Japan AnalyticsDRIFTING LOWER - TTM and Forecasts Aggregate Operating and Net Income continue to drift lower ahead of the full-year results for March year-end companies which are due in a more-concentrated-than-usual period either side of the long break.   Source: Japan Analytics 
MIND THE GAP - Based on our Scoring methodology for aggregate Results &amp; Revisions, the 'gap' between total market value and earnings momentum is now as wide as at the two previous 'peaks' in January 2018 and September 2018.Source: Bank of America Merrill LynchGLOBAL WAVE - The market is implying that the earnings cycle is close to a bottom which is in accord with BAML's Global Earnings Revision Ratio having ticked up last month for the first time in 14 months. BAML has yet to call a Trough in their Global Wave and, were they to do so, such a Trough would be the first above '50' since 2006.FORECASTS LEADING EARNINGS LOWER - Separating our the Results Score and the Forecast &amp; Revision Score, the latter is continuing to lead the former to the downside, although both Scores are in aggregate still positive. Reported earnings and forecasts are still growing year-on-year; however, the momentum is slowing rapidly.Source: Japan AnalyticsINTERIM LEADING ANNUAL LOWER -  Between February and September in each year, there is a statistically significant number of Interim Forecasts that they can be compared to the Annual Forecasts with which they are combined to derive the score in the previous chart. Interim Forecasts are often prepared by the divisional heads are not accorded the same 'reverence' as the Annual Forecasts. As a result, the Interim numbers offer a good leading indicator of short-term trends. In recent weeks, the aggregate Interim Forecast/Revision Score has turned sharply lower and is now at the lowest point in almost two years.   In the DETAIL section below, we will review Sector performance, company results, revisions and stock performance over the previous two weeks, as well as adding some brief comments on Koshidaka (2157 JP), Ryohin Keikaku (7453 JP), Drugstores, Daiwa House (1925 JP), Toyota Parts companies, and Yamato Holdings (9064 JP).

🇯🇵 Japan • Fortnightly Update - "UnCh"

Japan

WELCIA HOLDINGS CO.,LTD. is a holding company established through a merger of Welcia Kanto and Takada Pharmacy.  The Group mainly operates drug chain stores which sell medicines, health foods, cosmetics, nursery items and daily necessity goods.

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Welcia Holdings (3141 JP)

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Cocokara Fine は Cocokara いいね*

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