Daily Brief Japan: Leopalace21 Corp, Square Enix Holdings, Kadoya Sesame Mills, Kioxia Holdings , Seven & I Holdings, GMO Payment Gateway, Softbank Group, Nippon Avionics and more

• Today after the close, Hikari Tsushin (9435 JP) announced a deal to buy out Leopalace21 Corp (8848 JP) partnering with MBK and NEC Capital, taking out Fortress’ last 15%. 
• Hikari Tsushin bought its large stake very low in 2022, post-scandal. Fortress did too. Murakami tried earlier, failed. Others made money on it. 
• This deal offers near zero basic transparency, and comes at a sharp discount to the midpoint of the fair value DCF ranges. Very not a good look. But it’s vulnerable.

• I overlooked one detail in the Sep26 rebal announcement which, when discovered, changed my outlook on the March 2027 Nikkei 225 rebalance. 
• Unfortunately, the implied changes cannot be confirmed yet. It may be possible to get some greater confirmation in October. 
• But the implied changes signal a different pattern of ADDs and DELETEs. And a few stocks stand out. 

• Kadoya Sesame Mills (2612 JP) announced a tender offer from Integral (5842 JP) at JPY2,514, a 3.9% premium to the last close and a 40.2% premium to the undisturbed price.
• The offer could increase to JPY2,760 if both Mitsubishi Corp (8058 JP) and Mitsui & Co Ltd (8031 JP) agree to share buybacks. Two competing bidders remain in the background.
• Mitsubishi and Mitsui’s deliberately deferred, non-committal stance facilitates a potentially higher competing bid, particularly as the offer is below the midpoint of the IFA DCF valuation range.

• Bloomberg’s $10bn Kioxia US ADR report is anonymously sourced with no filing or term sheet — a placed leak. The underlying transaction is real, CFO-guided, and realistically prices Q2 CY2027.  
• Primary issuance dilutes 5.7%; a secondary clears c.28% of the register at no cost. Treasury stock covers only $5.3bn. Structure decides the trade, not size.  
• BULLISH maintained, fair value ¥72,000 pre-split / ¥24,000 post-split on 12x FY2027E EPS ¥6,000; ¥90,000 ADR scenario at 15x requires confirmation, non-dilutive structure and index entry.  

• Leopalace21 Corp (8848 JP) announced a tender offer from a Hikari Tsushin (9435 JP)-led consortium at JPY1,000, a 44.7% premium to the last close.  
• While the offer represents a 10-year high, it is materially below the midpoint of the IFA’s DCF valuation range and light compared to precedents. 
• The process is marred by poor governance, including the absence of an auction and an agreement on a share buyback price with unequal after-tax benefits. 

• A year after Couche-Tard withdrew its bid, Seven & I is still searching for new growth, leading to some speculation of closer ties with Familymart. 
• Over the summer, it pulled out of an attempt to expand in Europe, and watched franchisee profits fall for a second year.
• Having sold 6.6% of itself to SoftBank, PayPay and Sumitomo Mitsui Card, it is now hoping to buy a retail media future. It won’t be enough.

• Seven & i bought back ¥400bn of stock on 3 August, then sold ¥300bn of treasury shares to SoftBank, PayPay and SMCC. Net share reduction: 1.9%, not 8.19%.
• Q1’s +654% overseas profit surge came before Brent moved from $84 to $105. Q2 (Jun-Aug) is the retail fuel-margin compression quarter; guidance risk is to the downside.
• Downgrade BUY to NEUTRAL, fair value cut to ¥2,180 from ¥2,350 — two of three re-rating drivers are impaired, leaving only 8.2% upside into a binary 8 October result release.

• Take-Rate Defense through Multi-Layered Pricing: GMO Payment Gateway (GMO-PG) successfully mitigates the commoditization of payment processing by utilizing a four-tiered revenue model (setup, monthly fixed, transaction, and volume fees) rather than a pure percentage-of-GMV take-rate. This creates structural margin stability, keeping operating margins in the high-30s range.
• Embedded Finance Credit Risk Managed via Joint Ventures: In B2C and B2B lending offerings (such as atokara and transaction lending), credit risk is mitigated through strategic partnerships—primarily with Sumitomo Mitsui Card Company (SMCC)—and proprietary AI credit-scoring systems. This structured risk-sharing model maintains B2C buy now, pay later (BNPL) non-performing loan (NPL) ratios below a strict 2.0% threshold.
• Independence from GMO Internet Ecosystem is Commercially Viable: While GMO-PG benefits from the GMO Internet Group’s infrastructure and cross-selling ecosystem, the company operates with high commercial autonomy. If forced to become entirely independent, a minor 100-to-200 basis point margin drag from higher IT and branding overhead would be offset by newfound flexibility to partner with competing conglomerates like SoftBank or Rakuten.

• Softbank Group (9984 JP) was rallying strong until last Friday, then dropped -11% on Monday. Various factors contributed to this event.
• Heavy unwinding of previous speculative gains triggered a sharp risk-off repricing of the group’s NAV discount and leverage risk profile. Our model flagged the stock as ‘oversold’.
• Industry commentary from Anthropic, OpenAI, and tech leaders calling for caution/slowing in frontier AI development could temporarily favor a continuation of the sell-off, but we see a buy opportunity.

• Nippon Avionics Co., Ltd. (6946 JP) is experiencing strong fundamental momentum driven by the structural expansion of Japan’s national defense budget, resulting in FY2026 revenue surging 45.1% YoY to JPY 29,194M and net income rising 94.5% YoY to JPY 3,820M.
• The company’s core Information Systems segment benefits from high barriers to entry in mission-critical defense electronics, tactical display systems, and specialized hybrid ICs, while its Electronic Equipment division maintains high margins in precision micro-joining and infrared thermography.
• While profitability and operating margins have expanded significantly (EBITDA margin reaching 20.54% in FY2026), elevated working capital requirements and procurement cycles led to negative operating cash flow (-JPY 3,621M) and free cash flow (-JPY 4,350M), warranting disciplined monitoring of cash conversion.

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