Japan: Toshiba Corp, Lawson Inc, TeamSpirit Inc and more

By | Daily Briefs, Japan

In today’s briefing:

  • How Much of Toshiba Is Owned By “Activists”?
  • Lawson: Primed for Mitsubishi to Take Full Control
  • Japan Small Cap Growth: TeamSpirit – Better Days Ahead

How Much of Toshiba Is Owned By “Activists”?

By Travis Lundy

This should be considered a Big Question in terms of the Power Dynamics of Shareholders vs Management in the last EGM and the upcoming AGM.

It is difficult to know exactly.

It may also be difficult to define.

It is important to note that the Record Date of the recent EGM was 1 February and in the month after that, nearly 10% of shares out will have changed hands from one type of investor to another. 

It is also important to note that Toshiba directors, if they had chosen to know, could have known a few days into April (before the 6 April CVC approach) with some degree of clarity what the shape of the shareholder base looked like as of 31 March. Most of the rest of us have to wait until the yuho is released near end-June. 

This insight takes a look at the Shareholder Structure as of a point in time when we knew it, and compares it to the rest of MSCI Japan and TOPIX. Then we look at what MIGHT HAVE HAPPENED because of recent float ownership changes and whether that changes anything.

Lawson: Primed for Mitsubishi to Take Full Control

By Oshadhi Kumarasiri

Mitsubishi Corp (8058 JP) has had a longstanding interest in Japan’s third largest convenience store chain, Lawson Inc (2651 JP), for quite some time, lifting its stake in Lawson to 50.1% from 33.4% in 2016 via a tender offer at ¥8,650 per share.

With Itochu Corp (8001 JP) acquiring 100% of FamilyMart Co Ltd (8028 JP) mid-way through last year and Seven & I Holdings (3382 JP) standing strong on its own, Lawson has become even more important to Mitsubishi’s food processing and distribution businesses. At 1.35x Topix, Lawson is currently trading at a new historical low level relative to the Topix index and could perhaps lure Mitsubishi into taking full control.

Japan Small Cap Growth: TeamSpirit – Better Days Ahead

By Mark Chadwick

Q2 Trading update 

  • TeamSpirit Inc (4397 JP)  reported 2Q FY8/21 earnings after the April 9 close. The stock price fell by around 20% following that and a full-year guidance cut.  
  • The market reacted to the slower than anticpated growth in licences, which is the key revenue driver. Full year sales estimates were cut 8% to ¥2.9b.  
  • We take a positive view of management reaffirming its growth strategy and stepping up marketing activities for the new enterprise product, TeamSpirit EX.  

Before it’s here, it’s on Smartkarma

Japan: Toshiba Corp, Nissin Electric and more

By | Daily Briefs, Japan

In today’s briefing:

  • Last Week in Event SPACE: Toshiba, Grab, Huarong, Invesco Office, Intouch, Jardines
  • Nissin Electric (6641 JP): Interregional Grid Plan Should Support Long-Term Growth

Last Week in Event SPACE: Toshiba, Grab, Huarong, Invesco Office, Intouch, Jardines

By David Blennerhassett

Last Week in Event SPACE

  • The King Is Dead, Long Live the King: Toshiba Corp (6502 JP) announces Kurumatani-san is out and Tsunakawa-san is in.
  • Plus, other events, CCASS movements, and Mood Spins.

(This insight covers specific insights & comments involving Stubs, Pairs, Arbitrage, share Classifications, and Events – or SPACE – in the past week)


Toshiba Corp (6502 JP) (Mkt Cap: $19bn; Liquidity: $170mn)

Toshiba’s board supported Kurumatani-san, and has supported his lack of progress and capital plans. It has supported a certain lack of transparency. It supported Kurumatani-san’s objections to the new investigation. But if shareholders don’t trust Kurumatani-san, or the Board’s support of him, and a majority of the senior-most executives distrust the CEO too, then they must distrust the influence he has had on the Board. This cannot be good for the Board and the combination of shareholder activism and senior executive opinion has to be seen as something which could trigger dramatic change. and sure enough, Kurumatani-san is shown the door.

  • The Trade is still to be long. If a PE deal goes through, it should go through well north of ¥5,000/share. While a PE deal seems difficult because of national security concerns, they should be allayed with the right structure and funding. CVC’s talk about involving JIC and DBJ to support funding could lay out a model for KKR and Brookfield  – both rumoured to be kicking tires – to follow.  Fundamentally, there is upside to good execution and good governance. Multiples could definitely rise to match those of rivals which would get the stock well into the ¥6xxx handle. We have multiple private equity funds looking. While a ¥6xxx handle was noted in the press earlier this week, a ¥7xxx handle is appropriate if Kioxia is still part of the asset base being bought. 
  • METI’s involvement in Toshiba’s downfall, while bad, is now overshadowed by METI’s involvement in what are now governance issues. It may be that METI itself would rather see the company taken over and everything cleaned up behind the curtain of private ownership rather than have it play out with public, activist ownership.
  • As Mio Kato has noted repeatedly, the Toshiba Next Plan is not going badly at all. The track Toshiba is on is decent, and if it plays out with better capital allocation that would be all to the good. There is a Kioxia monetisation to wait for. If Coinbase which earns much less than Kioxia as an avatar of technology and the lower cost of fintech disruption of traditional markets can list at US$100bn, then there is money to buy the maker of a scarce commodity.
  • In addition, there is STILL a buy of 15,000,000 shares to complete the TOPIX upweight at the close of 28 April.  If you think that the significant large activists in the stock now will not be sellers because push is coming to shove and they won’t sell before the conclusion, that means the actual float willing to sell is quite a bit smaller than people think it is.

Links to:
Travis Lundy‘s insights: Gaming Out a CVC Bid for Toshiba – The Right Noises, The Wrong Price, and Toast & Toshiba – The King Is Dead, Long Live the King
Mio’s insight: Toshiba – How the Kurumatani Resignation and KKR or Brookfield Bids Could Change Things
David Lepper‘s insight: Toshiba Corp (6502 JP) Chapter 1: CEO Out, Activists up the Game

Invesco Office J Reit (3298 JP)  (Mkt Cap: $1.7bn; Liquidity: $14mn)

Invesco announced that it was asking Starwood Capital Group for an extension of their Tender Offer (launched a week ago) to 60 days. The “problem” is that Starwood is planning on squeezing out minorities in such a way as to not grant them appraisal rights. The concerns are that the squeeze-out will be carried out through procedures that do not give dissenting unitholders an opportunity to express their objections; and that a Mandatory Squeeze-Out is not Anticipated under the Investment Trust Act. The Investment Trust Act does not afford unitholders protections enjoyed by shareholders under the Companies Law, and METI Fair M&A Guidelines are not followed in this case. 

  • The request for an extension is made. It is not, to Travis’ knowledge, absolutely required that the Bidder honour the request for the full 60 days, but he would expect an extension of a certain length. 
  • This is DEFINITELY not a done deal for Starwood. It would make more sense for Invesco J-REIT holders to sell their shares at an uplift in return for shares in another REIT. Travis still thinks Ichigo Office Reit Investment (8975 JP) is the most likely candidate. 
  • Travis would be happy being long here for the short-term, but longer-term, there is a non-negligible possibility that this doesn’t get past the minimum tendering threshold.  At ¥20,840, the shares are 2% through Terms + Dividend. This is somewhat strong for a low-volatility asset in Japan – especially one in uncharted waters. At the end, there could be a game of chicken played between a buyer or buyers and the Bidder.

(link to Travis’ insight: Invesco Office J-REIT Responds to Starwood’s Hostile Offer)

Jardine Matheson Holdings (JM SP) (Mkt Cap: $23bn; Liquidity: $23mn)

The vote at Jardine Strategic Holdings (JS SP)‘s special general meeting was a foregone conclusion. The resolution as set out in the Notice of Special General Meeting contained in the Circular to shareholders on 18 March 2021 was duly passed. 92% of shareholders voted for the resolution. I understand 966.563mn shares voted FOR the resolution, 85.549mn AGAINST, and 55.282mn did nothing. So the turnout was 95%.  Turnout ex-Matheson was ~70%. The maximum dissension is 7.8% of shares out.

  • Collapsing the circularity and removing its quirky complexity may continue to drive interest (from LOs) in Matheson, especially with certain listcos (MAND, HKL, JCNC) trading cheapish.
  • Yet a 14% discount is not particularly attractive for a vast holding company structure. Plus the governance-lacking aspects of the UK’s Standard listing have been laid bare. A derisory offer for Matheson down the track is a real possibility. 

Mainstream Group Holdings Ltd (MAI AU)  (Mkt Cap: $0.2bn; Liquidity: <$1mn)

On 9th March 2021, Australia-based third-party fund administration services provider Mainstream announced they had signed a Scheme Implementation Deed to be acquired by Hong Kong-headquartered Vistra in an all-cash deal that valued the company at a market cap of ~A$170mn. The Offer Price was A$1.20 per share.  MAI has now announced that they had received a superior bid from US-based financial technology company Ss&C Technologies (SSNC US) at an Offer Price of A$2.00/share. 

  • SS&C’s proposal requires the Vistra Scheme Implementation Deed (SID) to be terminated. MAI has notified Vistra about SS&C’s proposal and Vistra has until 16th April 2021 to respond.  Vistra has a matching right and they can decide to match or overbid. If Vistra decide not to exercise their matching right but decide to exercise their call option deeds that Vistra entered into with entities controlled by MAI directors, they will have to vote all shares it received in favour of SS&C’s proposal. Vistra will hold approximately 19.9% as a result of this transaction. 
  • SS&C’s proposal translates to a FY21E EV/EBITDA multiple of 24.2x which is a significant improvement on the EV/EBITDA multiple of 14.2x offered by Vistra. However, it is worth remembering that MAI is a high-growth company with an expected EBITDA CAGR of 28%+ for FY21E-FY23E. If Vistra or another competitive bidder decide to overbid, this situation could become more interesting. 
  • Janaghan Jeyakumar would be long at or below the current trading price. MAI shares are currently at A$1.975 translating to a gross spread of 1.27%. According to the Indicative Timeline provided in the Official Announcement, the Deal is expected to complete in ~3 months. That translates to an annualized spread of 5.1%. In the absence of an overbid by Vistra (or another competitive bidder), Janaghan expects this Deal to complete. 

(link to Janaghan’s insight: Mainstream (MAI AU): Massive Overbid by SS&C, Now Vistra Has to Respond)

Zhejiang Cangnan Instrument (1743 HK)‘s Offer Document has been despatched with the IFA concluding the Offer price to be fair and reasonable. The EGM will take place on the 17 May and the first closing date is the 31 May. As discussed in Zhejiang Cangnan (1743 HK): H-Share Buyback, given the company’s dubious price action last year and shareholder concentration, I would normally give this stock a wide birth. But it is precisely this shareholder concentration that the Offer has an excellent chance of getting up.  Including the 90% tendering condition.

In Square Enix – CTFN Reports M&A Interest, Mio is sceptical as to the CTFN report that Square Enix Holdings (9684 JP) is the subject of M&A interest from a variety of companies. His suspicion is that there are some companies sniffing around Square Enix which would make sense because it is relatively cheap and has some great and unique assets. But he doesn’t think it is available for sale and we do think that Sony could defend it relatively easily.

The share purchase agreement entered into between Zhuhai SASAC and Di Er Ton /Digital Science & Technology, to acquire domestic shares in mobile device manufacturer Beijing Digital Telecom (6188 HK) has now completed. The MGO has subsequently been triggered. The MGO has a 50% tendering condition – attached to ALL voting rights of Beijing Capital. No irrevocables have been received to date. The Composite Document is expected to be despatched by the 16 April, at which time the Offer will be open for acceptances. Link to my insight: Beijing Digital (6188 HK): Zhuhai SASAC’s MGO On Track.


Grab (0967655D SP) 

The proposed transaction with Altimeter Growth Corp (AGC US) represents an expected equity value of US$39.55bn and EV of US$30.36bn, with cash proceeds of US$4.54bn. In past insights on SPACs, beginning with Virtual IPOs/Direct Listings: Uninhibited Price Discovery, one issue for SPACs is their overabundance in the market today, targeting popular private companies. As such, popular private companies can tee up “SPAC-offs,” where various SPACs pitch their deal, competing (mostly) on price.  The higher the acquisition price, the lower the future return for SPAC investors.

  • And Grab has competition. Its main rival is Indonesia’s Gojek (1379371D IJ), and the two courted each other around February last year before irreconcilable differences led to them parting ways in January this year. There is talk Gojek will merge with e-commerce payer Tokopedia and similarly seek a US listing. Mobile gaming and online shopping platform player Sea Ltd (SE US) is also in the mix, and currently boasts a non-insignificant market cap of US$125bn.
  • Pegging the various business ops – mobility, delivery – to peers, one would end up with a lower multiple than what the business is being offered at.

Links to:
Sumeet Singh‘s insight: Grab SPAC Listing – High on Ambition, Very High on Valuation
my insight:  SPAC Grab … At 2x Uber
Shifara Samsudeen‘s insight: Grab: SOTP Suggests Steep Discount to Proposed SPAC Valuation

China Huarong Asset Management (2799 HK)  (Mkt Cap: $5.1bn; Liquidity: $4mn)

Huarong was originally set up in 1999 by Beijing, in response to the Asian financial crisis,  to bail out a State-owned bank – ICBC – before listing. Rumours abound the State may resort to bailing out Huarong or risk a domino effect of losses at other (state-owned) entities which have lent to Huarong. The bailer becomes the bailee?

  • Reportedly a restructuring of Huarong, modeled on the May 2019 government-led bailout of Baoshang Bank, was proposed earlier this year, involving a takeover from a counterparty, and the PBOC opening up the spigots. Part of that plan allegedly involved recovering RMB350bn of Huarong’s outstanding bonds at around par.
  • Alternatively, Huarong is broken up into its securities, banking, trust, and futures divisions – operations deemed “good assets” worth maintaining. And divisions that boast necessary permits. Another asset manager would then step in and take over the running of Huarong as an AMC.
  • With the benefit of the restructuring of Baoshang Bank – and Anbang and Evergrowing Bank – China has developed a mature process to address a situation such as Huarong’s. A more measured de-risking approach is likely here as opposed to a less-than-optimal major debt restructuring, which may result in an unnecessary domino effect for financial companies and creditors of its RMB 350bn of liabilities.
  • I don’t have a strong opinion on Huarong’s equity here, although its P/B of 0.25x compares to its average of 0.5x since listing. But the offshore bonds look like the wrong price.
  • Reuters are now reporting that Chinese regulators have asked banks not to withhold loans to Huarong as part of support measures to stabilize its cash flow. 

(link to my insight: China Huarong Asset Management (2799 HK): This Is Manageable)

In two SCMP articles on the 7 April, PRC media tycoon Li Ruigang, Television Broadcasts (511 HK)‘s largest shareholder (via Young Lion Holdings), discussed his dissatisfaction with TVB’s performance. Unqualified voting controllers – such as Li – at general meetings of TVB are capped at 49%, however, I believe there could be major changes in the Broadcasting Ordinance.  It could be argued that even if that were the case, any reform would occur at a glacial pace – it took the Communications Authority 28 months to review TVB’s shareholding structure. But in TVB (511 HK): Small Screen Saver, I surmise that the accelerated rate at which legislature and reform are occurring in this city, a revamp, should it come, may occur quickly. TVB is very beaten up. Li has a plan, it would seem – one that fits in with CMC’s listing in a couple of years. If he is given the green light, shares will pop, if not on the economics, but at least on sentiment.

A recent internal discussion paper, authored by an executive committee member of the Bauhinia Party – pro-Beijing political party with close links to Beijing’s authorities – refers to the housing issue in Hong Kong, wherein the gap between the rich and poor is widening, causing social unrest to the point of “threatening the security of one country“. The paper indicates the Central government has the right to coordinate the supply of land in Hong Kong. Expropriation would be in flagrant violation of Basic Law protection of private property. But the precision and speed with which legislature and reform are taking place in Hong Kong, such a possibility is all-too-believable. In Hong Kong Property Developers: Eminent Domain I canvass previous attempts to address Hong Kong’s farmland, and see Henderson Land Development (12 HK) has the most to lose from any such extraordinary measure, followed by New World Development (17 HK)

In SK Telecom Equity Spinoff Announcement: Summary, Takeaways, & Price Impact and SK Telecom Officially Announces a Spin-Off to Create a Holding Company Structure, Sanghyun Park and Douglas Kim discuss SK Telecom (017670 KS) finally announced its long-awaited decision to create a new holding company for its non-telecom related subsidiaries


I see the discount to NAV at ~12%, versus a one-year average of 21% and a long-term average of more than 25%. By my estimate, the discount to NAV has never been narrower. And the simple ratio (Intouch/Advance) is also at an all-time extreme; with the implied stub around levels only briefly touched previously, before later retracing.

  • Gulf’s holding is problematic and breaks every guideline in corporate governance 101. Intouch is on record that Gulf’s stake in the company is “positive”, reflecting Intouch’s dividend yield and favourable business direction; yet cash outlayed of ~Bt30bn should have been distributed to Gulf shareholders as a dividend – and it is for those shareholders to decide whether to invest in Intouch, not Gulf’s management.
  • Gulf’s buying appears to be done, for now.  I did not expect Gulf to lift its stake from 5% to 10%, then again to 15%, therefore it is difficult to rule out further increases. It is now two and half months since the last stake increase.
  • I’d be shorting Intouch here and buying AIS. I think a more reasonable discount to NAV is >20%. 

M&A – US

Hollysys Automation Technology (HOLI US)  (Mkt Cap: $0.8bn; Liquidity: $5mn)

What a mess. On the 1 February a consortium including co-founder and former Hollysys CEO Baiqing Shao, Ace Funds, and Chinese PE outfit CPE Funds Management bumped its Offer for Hollysys to US$17.10 from US$15.47. Hollysys has yet to make public its opinion on the revised Offer, other than there is no need for shareholders to “take any action at this time”. But the big issue concerns the legal dispute over the beneficial ownership of the Hollysys’ shares held by Ace Lead and the beneficial ownership of the shares of Ace Lead held by Shao, Hollysys announced a legal action had commenced in the Hong Kong High Court against Shao and Ace Lead on March 9, 2021.
  • Cases are ongoing in both Hong Kong and the BVI.  I am no legal expert, and it is not clear how the validity and enforceability of this pans out as to the claims in the BVI – where Hollysys is domiciled – or the Hong Kong Court. Hollysys appears to be claiming the shares held by Ace Lead are held in trust and that Shao is simply not the beneficial owner. Hollysys has also requested that the trial of the lawsuit should take place on an expedited basis in July 2021. Don’t expect any major developments until the conclusion of this trial.
  •  I estimate forward PER/EV-to-EBITDA of 9.0x/2.8x under the indicative proposal, and a PER/EV-to-EBITDA/PBR of 13.1x/3.3x/1.1x on a trailing basis. Before factoring in the large net cash pile –  US$682mn or 88% of the current market cap. Hollysys shares appear substantially undervalued, as does the indicative Offer. 
  • I agree with CPE that the board of Hollysys should convene a shareholder meeting for its shareholders to consider and vote on the consortium’s proposal. It has a fiduciary duty to do this. But such a meeting should only take place once the legal spat has concluded. Shares are cheap here, and may drift cheaper, until a firmer timeline of the legal wrangles unfolds. I suspect CPE will continue to flame the situation with additional press releases in the interim.

On March 26, 2021, MagnaChip Semiconductor Corp (MX US) entered into an agreement to be acquired by Wise Road Capital in all-cash go-private transaction of $29/share. With the prevailing share price of $25.29 as at the close of business on April 12, 2021, the spread at ~15% offers a potentially attractive IRR of between 20% and 32% should the transaction close by the end of December or September. In MergerTalk: Magnachip Semiconductor Corp (MX US)-Wising Up To An Attractive Risk-Arb OpportunityRobert Sassoon lays out why think the spread indicates a rewarding risk-arb opportunity.


On 13 April, Orange SA (ORA FP) announced that its €22/share offer for Orange Belgium (OBEL BB) was final. The offer price implies 5.1x EV/21E EBITDA (below the median of peers at 5.9x, see table above) and 9.7% 21E FCF yield (source Capital IQ consensus), and 2.2% dividend yield. The market seems to think there are grounds for an improved offer, as the share price is still above the offer price. In Orange Belgium – Orange: Final Offer and Holdouts, Jesus Rodriguez Aguilar recommends buying on any dip below the offer price.

Veolia Environnement SA (VIE FP) has increased its Offer for Suez (SEV FP) from €18 per share to €20.5 per share. The improved offer represents1.5x EV/Fwd revenue, 8.1x EV/EBITDA, 27.4x Fwd P/E, and an implied EV of €25,574 mn and implied equity value of €13,103.6 mn. In Suez – Veolia: Peace Pipe, Jesus reckons this is a rock solid trade, albeit the gross spread is an unexciting 3.2% on a deal that may take up to a year from now to close. Long TP €20.5, and monitor to add on any dip.


In Ping An A/H Premium: Nearing a Discount; Set Up for Expansion, Brian Freitas highlights Ping An A-shares Ping An Insurance Group Co Of China (601318 CH) are trading at parity versus the H-shares Ping An Insurance (H) (2318 HK), suggesting the risk/reward is skewed in favour of buying the A-shares and selling the H-shares.


Kasikornbank PCL (KBANK TB) is included in the MSCI Standard index through its foreign line Kasikornbank PCL (KBANK/F TB) and the NVDR Kasikornbank PCL (KBANK-R TB). In Kasikornbank (KBANK TB) – Double Whammy, Brian sees a high probability of the foreign line being deleted at the upcoming May SAIR since it fails the EM Minimum Liquidity Requirement. There is also a possibility of a reduction in the Foreign Inclusion Factor (FIF) on the Non-Voting Depository Receipt (NVDR) line if the foreign room stays below 15% on the price cutoff date.

China Securities Index Co will announce the changes end May/beginning June and the changes will be effective after the close of trading on 11 June. In CSI300 Index Rebalance Preview: Recovering from the Growth Sell-Off, Brian expects 30 changes at the upcoming June 2021 index review – this is the maximum number of changes that are permitted at a single review. Estimated one-way turnover is 4.08% and will result in a one-way trade of CNY 10.8bn.

NIFTY50 Index Rebalance Preview. At more than a third of the way through the review period that runs from February to July, in NIFTY50 Index Rebalance Preview: Info Edge Could Replace IOC Brian sees one possible change to the index with Info Edge India (INFOE IN) replacing Indian Oil Corp (IOCL IN). There could be more changes if some large stocks like Adani Green Energy Ltd (ADANIGR IN) and Avenue Supermarts Ltd (DMART IN) are included in the Futures & Options (F&O) segment of the market. Vedanta Ltd (VEDL IN) does not make the cut for index inclusion following the 10% reduction in its free float following the open offer.

FTSE TWSE Taiwan 50 Index Rebalance Preview. The next quarterly rebalance will be effective after the close of trading on 18 June and the changes will be announced on 4 June. Data from close of trading on 24 May will be used to determine the list of inclusions and exclusions. Using data from the close of trading on 15 April, Brian reckons in FTSE TWSE Taiwan 50 Index Rebalance Preview: Price/Volume Surge Brings Three Potential Changes that Evergreen Marine Corp (2603 TT)AU Optronics (2409 TT), and Innolux Corp (3481 TT) will be added to the index at the June review, while the three deletions are Wiwynn Corp (6669 TT)Taishin Financial Holding (2887 TT) and Catcher Technology (2474 TT).



My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions.  These may be indicative of share pledges.  Or potential takeovers. Or simply help understand volume swings. 

Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, lock-up expiry, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.   


% chg


Out of

Janco (8035 HK)10.00%KingswaySilverbricks
Speed Apparel (3860 HK)75.00%ElstoneOutside CCASS
Anchorstone (1592 HK)64.99%Get NiceYuzhou
Tianyun International Holdings (6836 HK) 27.00%China GalaxyOutside CCASS
K Group (8475 HK)25.02%EasyOutside CCASS
Kinetix (8606 HK)33.75%ZundiaoLee Go
Wang On (1222 HK) 32.36%UBSKingston
Sandmartin Intl Hldgs (482 HK) 25.39%SHKMorton
Source: HKEx

The following large movement(s) concern recently listed companies, and therefore are (likely) lock-up related.


% chg


Out of

Mediawelcome (2159 HK)51.76%CitiOutside CCASS
JHBP (Genor) (6998 HK) 11.76%St ChartOutside CCASS
Channel Micron (2115 HK)13.40%MasonOutside CCASS
Source: HKEx

Nissin Electric (6641 JP): Interregional Grid Plan Should Support Long-Term Growth

By Scott Foster

On April 15, the Nikkei reported that Japan’s Ministry of Economy, Trade and Industry and Organization for Cross-regional Coordination of Transmission Operators have drawn up plans to double the nation’s interregional power grid capacity by linking the northern and southern islands of Hokkaido and Kyushu to the main island of Honshu and expanding connections between other regions. Details are expected to be announced later this month.

This should provide long-term support for Nissin Electric and other makers of electric power equipment. In the meantime, Nissin’s power equipment, ion implant and other businesses are rebounding from the COVID downturn. 

Projected valuations indicate 30% potential upside.

Before it’s here, it’s on Smartkarma

Japan: Toshiba Corp, Invesco Office J Reit, Nippon Sheet Glass, ZOZO Inc, ARTERIA Networks Corp, Internet Initiative Japan, Lawson Inc, Lasalle Logiport REIT and more

By | Daily Briefs, Japan

In today’s briefing:

  • Smartkarma Flash Webinar | Toshiba – Change Is Afoot
  • Invesco Office J-REIT Responds to Starwood’s Hostile Offer
  • Nippon Sheet Glass (5202 JP): Significant Upside Potential Remains
  • Zozo Villa Reborn
  • Arteria Networks – Focused Growth Supported by High-Quality Assets (Initiation of Coverage)
  • Internet Initiative Japan – Potential Growth Remains Under-Appreciated (Initiation of Coverage)
  • Seijo Ishii Outperforms in Pandemic
  • JREIT Offering: Lasalle Logiport REIT (3466 JP) – Take It (Vs Comps)

Smartkarma Flash Webinar | Toshiba – Change Is Afoot

By Smartkarma Research

In this flash webinar, Travis Lundy and Mio Kato talk through the recent goings-on at Toshiba Corp (6502 JP) and what it means for investors.

The webinar will be hosted on Thursday, 15/April/2021, 4.00pm SGT/HKT.

Travis Lundy has 20+yrs experience in Asia doing alternative strategies (i.e. non-delta1 non long-only) in fixed income, equity derivatives, and activist/catalyst/event-driven and long-short equity strategies with most of that time spent managing money.

Mio Kato has over 15 years of experience looking at Japanese and Asian cyclically driven sectors. He was previously with FrontPoint Partners LP, Arrowhawk Capital Partners, and Uzabase before founding LightStream Research.

Invesco Office J-REIT Responds to Starwood’s Hostile Offer

By Travis Lundy

Today after the close, Invesco Office J Reit (3298 JP) announced that it was asking Starwood Capital Group for an extension of their Tender Offer (launched a week ago) to 60 days, made an announcement establishing a Special Committee with appointed committee members and related consultations, and posted a Notice Concerning Statement of Opinion (Opinion Reserved) regarding the Tender Offer by Starwood Capital Group.

The Announcements




Notice Concerning Announcement of Establishment of Special Committee, Appointment of Committee Members, and Consultation with Special Committee



Notice Concerning the Request for Extending the Period of Tender Offer by Starwood Capital Group



Notice concerning the Statement of Opinion (Reservation) on Tender Offer by Starwood Capital Group



It’s an interesting response. It includes elements I had not expected but which are worthwhile. And the units are now trading 2.15% through Terms+Dividend.

Nippon Sheet Glass (5202 JP): Significant Upside Potential Remains

By Scott Foster

  • NSG’s share price has rebounded to its pre-COVID level but is still 44% below its 2018 high.
  • Demand for architectural, automotive and speciality glass is on the rebound. Year-on-year sales and operating profit comparisons have turned or are turning positive.
  • As business returns to normal, projected valuations suggest 30% to 50% potential upside.

Zozo Villa Reborn

By Michael Causton

ZOZO Inc (3092 JP) is accelerating category expansion and last month unveiled a new luxury/designer section alongside its new cosmetics space. Zozo Villa will help Zozo increase sales as well as raise margins through higher average shipment values.

Arteria Networks – Focused Growth Supported by High-Quality Assets (Initiation of Coverage)

By Kirk Boodry

Arteria Networks is a facilities-based provider of fixed telecom services that stands out for having the fourth-largest fiber network in Japan whilst it is also a major provider of ISP services to condominiums. Its main business is the provision of Internet and network services to Enterprise customers and the company is well positioned to grow, especially as a coronavirus-driven demand shift expands the market. We initiate coverage at Buy supported by a ¥2,380 target price for FY21-end implying 48% potential upside.  

Internet Initiative Japan – Potential Growth Remains Under-Appreciated (Initiation of Coverage)

By Kirk Boodry

We consider Internet Initiative Japan (IIJ) to be a core holding in the Japan telecom space, supported by exposure to faster growth corporate revenue buoyed by a track record of success in bringing new products and services to market. The company has generally operated at the leading edge of service offerings being among the first to offer cloud services and MVNO mobile, followed more recently by network tools like security and IoT solutions. This progression of adding services to sell into a receptive enterprise user base has helped generate consistent top-line growth for over 20 years with margin improvement and free cash flow generation now ramping up. We value IIJ at ¥3,270/share and with 25% potential upside we are initiating coverage at Buy.  

Seijo Ishii Outperforms in Pandemic

By Michael Causton

Seijo Ishii is Japan’s largest upscale supermarket chain and is owned by Lawson Inc (2651 JP) (and thus in turn, Mitsubishi Corp (8058 JP)). Last year, as people stayed at home and looked for higher quality foods  to replace dining out, the chain outperformed. Selling fresh food and its own range of exclusive deli and many imported brands, it is an excellent partner for overseas firms.

Seijo now has one of the highest margins of any supermarket in Japan.

JREIT Offering: Lasalle Logiport REIT (3466 JP) – Take It (Vs Comps)

By Janaghan Jeyakumar, CFA

After market-close on 14th April, Logistics J-REIT Lasalle Logiport REIT (3466 JP) launched a follow-on equity offering to fund part of their recent property acquisition. 

The primary offer quantity is 140,000 units out of which 73,850 units are expected to be allocated to the domestic market and 66,150 units are expected to be allocated to foreign buyers. There is also an over-allotment quantity of 7,000 units. The total size of this offering could be around ¥25bn (~US$230mn). 

The Offer Price will be determined between 21st April and 26th April (typically it has been the first day of this window for most JREIT offerings) and the day following the offer price determination day (pricing date) will be the application date. 

More below the fold.

Before it’s here, it’s on Smartkarma

Japan: Toshiba Corp, Lasalle Logiport REIT, Tess Holdings Co Ltd and more

By | Daily Briefs, Japan

In today’s briefing:

  • Toshiba – The King Is Dead, Long Live the King
  • Toshiba Corp (6502 JP) Chapter 1: CEO Out, Activists up the Game
  • LaSalle Logiport REIT Placement – Well-Flagged Property with Upside Potential
  • Tess Holdings IPO – Valuation

Toshiba – The King Is Dead, Long Live the King

By Travis Lundy

That famous phrase is not internally contradictory. It announces the death of the late monarch, and announces the ascension of the new monarch to replace him. 

A flurry of articles late last night Japan time – some of them referenced in a few discussion points posted to the most recent insight Gaming Out a CVC Bid for Toshiba – The Right Noises, The Wrong Price, and Toast and others said that Kurumatani-san was going to be dismissed, or resign, at an extraordinary board meeting to be held on the 14th of April. 

The various articles were more or less revealing depending on how much the masthead represents Japan as Japan Inc would have itself represented. Articles from institutions with a more neutral/critical eye were more forthcoming about the turmoil under the surface. 

The phrases from the former were on the order of “it became inevitable that Kurumatani-san would have to resign.” The FT suggested one board member would put forth a motion to dismiss him after the CVC approach last week threw senior management into “civil war.”

Later versions suggested Kurumatani-san would himself resign at the beginning of a meeting, which would forestall an effort to boot him (The King is Dead). Toshiba’s exchange release this morning in response to press coverage all but confirms it.

If Kurumatani-san is going to fall on his sword because of the CVC conflict (and the idea that by getting CVC to bid to distract from the other things going on, he was somehow entrenching himself in ways not befitting Toshiba adherence to the spirit of the Corporate Governance Code), one would expect Fujimori-san may resign as well. 

All the stories suggest the current Chairman and former CEO Tsunakawa-san would take the reins (Long Live the King!) but despite Tsunakawa-san being on friendlier terms with some of the activists, the Board needs to find someone else. I expect there would be shareholder pressure to have that person come from without, but Toshiba is a sensitive asset and there could be considerable pressure to have that person come from within, or if from without, from within the Keidanren. I think investors need to prepare themselves for the possibility that the replacement for Tsunakawa-san may not be the CEO Toshiba needs either, but that may be jumping the gun.

The result is not dissimilar to what Mio Kato and I had suggested was inevitable, but the speed of the unwind may catch people by surprise. I expect that the news reports of the internal survey conducted by the Nomination Committee which showed a majority of senior executives distrusted Kurumatani-san will be viewed as the tipping point…

But investors should note that the results of that survey were known in March, conveyed to Kurumatani-san at end-March, and the Board knew it at end-March – before the CVC bid. The results of that survey were not enough to ask for his head at the time unless the CVC bid was well-and-truly concocted by CVC and Kurumatani-san himself as a way to maintain power. If that is the case, CVC needs to get out in front of it, by being very public in refuting that, and continuing with a bid, even if they bid to lose. 

This whole situation, as I suggested last week, is getting interestinger

And we have toast. Officially, before I even finished this piece, Toshiba is out with a press release saying Kurumatani-san is out and Tsunakawa-san is in. It’s pretty spare, but there is a news conference after the close.

NOW we look at what comes next. With KKR and Brookfield potential bids, and more details about CVC intentions overnight, it’s worth looking at structure. So there’s more below the fold.

Toshiba Corp (6502 JP) Chapter 1: CEO Out, Activists up the Game

By David Lepper

The fact is that Toshiba is now in play for privatisation with the CEO out and one of the more prominent activists citing their position and desired starting valuation. However, this is likely to be far from a linear trajectory to its end chapter. It will likely remain a fast-moving situation – as we write this note, the landscape has evolved almost on an hourly basis – and we do not expect it to slow in the next few weeks. As we stand at the time of publishing, there are several summary points to consider, particularly as we leave the Introduction phase of this story and proceed to embark on Chapter One of our fourth theme in 2021’s activist landscape. 

Tess Holdings IPO – Valuation

By Mio Kato

Tess Holdings offers an interesting play on the developing solar and renewables theme in Japan which has done very well over the last twelve months. Prospects appear positive and the stock looks reasonable on a PE basis, so the question is how to interpret the high levels of leverage.

Before it’s here, it’s on Smartkarma

Japan: Toshiba Corp, Tess Holdings Co Ltd, Rakuten Inc and more

By | Daily Briefs, Japan

In today’s briefing:

  • Toshiba Corp (6502 JP) – And so It Begins
  • Toshiba – How the Kurumatani Resignation and KKR or Brookfield Bids Could Change Things
  • Tess Holdings IPO – A Timely Renewables Play
  • Gamechanger: Rakuten’s Win-Win Alliance with Japan Post

Toshiba Corp (6502 JP) – And so It Begins

By David Lepper

As of last week, the Nikkei Newspaper reported The US$20 billion buyout offer for Toshiba by U.K. investment firm CVC Capital Partners. This confirmed our view that we shall see an increasing number of Private Equity Managers start to use its dry powder in more significant ways to create and lobby for corporate change, thereby assuming their activism role. We discuss valuation, the key items which must occur for traditional activists to accept this transaction as well as the chances of a competing bid amongst other items. We specifically examine why management is going to have to declare their position and interests, in the coming days to ensure a clear and efficient. Failure to do so is likely to see them out of office ahead of this transaction even having the chance to be successful.

Toshiba – How the Kurumatani Resignation and KKR or Brookfield Bids Could Change Things

By Mio Kato

The news flow cycle for Toshiba kicked up again overnight as Travis has pointed out. As Travis and I have suggested would happen, Kurumatani is out and other PE funds have started to circle. The initial reaction here should be positive given that it has been reported that KKR is contemplating a higher bid, however, the long-term outlook becomes a little more complex.

Tess Holdings IPO – A Timely Renewables Play

By Mio Kato

Tess Holdings offers relatively pure play leverage into Japan’s developing cogeneration and especially solar energy markets at a time when there is increasing news flow in the area. With a business model covering the full chain from land procurement, regulatory approvals, construction, operation and maintenance and asset management, the company offers a one-stop-shop in the area. There are thus many positives, though the debt levels are a slight concern.

Gamechanger: Rakuten’s Win-Win Alliance with Japan Post

By Michael Causton

The war between Softbank Corp (9434 JP)/Z Holdings (4689 JP) and Rakuten for leadership in digital ecosystems has seen Z Holdings acquire new partners and subsidiaries, and take leadership in cashless payments and then messaging through its merger with LINE Corp (3938 JP).

Now Rakuten Inc (4755 JP) is fighting back with a truly game changing deal with Japan Post Holdings (6178 JP) that could provide the reach and finance to develop new synergies in e-commerce, logistics, cashless payments and points, banking, insurance and mobile.

This is a major reset in the rivalry in digital commerce, making Rakuten almost like a state-backed enterprise – with all the benefits that implies. Z Holdings should be worried.

Before it’s here, it’s on Smartkarma

Japan: Toshiba Corp, Stella Pharma Corp, Fast Retailing and more

By | Daily Briefs, Japan

In today’s briefing:

  • Gaming Out a CVC Bid for Toshiba – The Right Noises, The Wrong Price, and Toast
  • Stella Pharma IPO – Potential Looks Underappreciated
  • Fast Retailing: Trying to Pass Benefits of Cost Cutting to Customers

Gaming Out a CVC Bid for Toshiba – The Right Noises, The Wrong Price, and Toast

By Travis Lundy

Things are heating up.

Some might say after today that Kurumatani-san is on the hot seat feeling considerably toasty.

Over the weekend, there were more noises as the Nikkei reported that Toshiba would “take the CVC bid seriously”, had set up an internal review committee to be chaired by a Vice President, and that the approvals would be expected by early summer, a Tender Offer would start in July, and if successful, Toshiba would be delisted in October. 

This morning there is a report that the large increase in position by Singapore-based (and as the Nikkei describes them “noisy shareholder” 3D Investment Partners reported in the previous insight was in fact 3D purchasing the stake from Harvard Investment Management. This is important because 3D voted against Kurumatani-san last year as director and later asked the firm to investigate vote-counting irregularities. Harvard,  with 4.7%, abstained, reportedly after former GPIF CIO Hiromichi Mizuno – champion of governance and stewardship while at GPIF and then-special advisor to METI – communicated with Harvard and voiced the possibility that if they voted against Kurumatani-san there could be a probe based on the idea that if shareholders coordinate to vote without declaring joint ownership, there can be issues (Reuters report, FT article).

Now there appears to be no issue of a Harvard abstention and clear increase in voting power for shares held by those who would challenge management (with or without Kurumatani-san) on capital and management policy, but to be clear, votes FOR are measured as a percentage of votes PLUS active abstentions. If Harvard actively abstained (rather than passively not voting), then this won’t change the support ratio (it would just change the optics). IF the 21.4mm share position moved from passive abstention to active opposition, it would have lowered the votes FOR from 57.98% to 54.46%, but Kurumatani-san would have squeaked through still. 

The entire situation is great fun. The situation of Toshiba governance has become something of a governance nightmare and with national security issues at stake for a minority of the business, a potential bureaucratic quagmire. But the company is doing decently well, and is long a desirable asset, and there are LOTS of shareholders who are heavily vested in seeing this through. And it appears with the March EGM result that they have a majority. 

Sitting in the audience, it makes me want to have a squirt gun, rubber gloves, rice, newspaper, and toast. Gotta have toast. 

Stella Pharma IPO – Potential Looks Underappreciated

By Mio Kato

This is the follow-up report on the financials and valuation aspects of Stella Pharma, after our previous report on its business model ad technology. Given the early stage of the business, firm conclusions are difficult here, but assessing potential prospects against the market sizes for cancer treatment, the niches the company is targeting and its particular technology, on balance we feel positioning is attractive.

Fast Retailing: Trying to Pass Benefits of Cost Cutting to Customers

By Oshadhi Kumarasiri

Fast Retailing (9983 JP) delivered 2QFY21 results on 9th April 2021 with revenue and operating profit falling behind consensus estimates by ¥21.5bn (4%) and ¥6.7bn (11%) respectively. However, the company raised its FY21 consolidated revenue and operating income guidance by ¥10.0bn each to ¥2,210bn and ¥255.0bn respectively.

Even following a 20% decline in the share price in the last couple of months, Fast Retailing’s valuation remains extremely expensive. Thus, we would not rush to buy this dip.

Before it’s here, it’s on Smartkarma

Japan: Yaskawa Electric, Hitachi Ltd and more

By | Daily Briefs, Japan

In today’s briefing:

  • Yaskawa – Is Sigma-X Going to Drive Large Margin Gains?
  • Hitachi Ltd. (6501 JP): Buys Kyoto Robotics, Plans to Sell Hitachi Metals

Yaskawa – Is Sigma-X Going to Drive Large Margin Gains?

By Mio Kato

Yaskawa kicked off earnings season for the FA segment on Friday posting revenue of ¥390bn, above consensus of ¥388bn and guidance of ¥381bn. However, OP was just ¥27.2bn, marginally below guidance and significantly below consensus of ¥28.7bn. Yaskawa’s weak margins make us bullish on future margins.

Hitachi Ltd. (6501 JP): Buys Kyoto Robotics, Plans to Sell Hitachi Metals

By Scott Foster

Hitachi Ltd.’s restructuring continues with the acquisition of Kyoto Robotics and the planned sale of Hitachi Metals. We regard both developments as positive. 

  • On April 8, the Nikkei reported that Hitachi Ltd. had given preferential negotiating rights for the sale of its 53.6% stake in Hitachi Metals metals to a consortium led by Bain Capital. The price was estimated at ¥800 billion (¥7.3 billion) or more, which could pay for most of Hitachi Ltd.’s recently announced purchase of GlobalLogic for $9.6 billion.
  • Also on April 8, Hitachi Ltd. announced that it had purchased 96% of Kyoto Robotics, a designer and producer of three-dimensional machine vision and AI control systems for handling robots. This gives Hitachi advanced robotics technology and expertise, enhancing its ability to provide integrated systems for logistics and factory automation.

The removal of Hitachi Metals (5486 JP) from Hitachi Ltd.’s consolidated accounts would reduce total revenues by 9% compared with FY Mar-21 guidance but have a small but positive short-term impact on operating profit.

Before it’s here, it’s on Smartkarma

Japan: Toshiba Corp and more

By | Daily Briefs, Japan

In today’s briefing:

  • Toshiba – Tsunakawa’s Reappointment as EO Is Probably the End for Kurumatani

Toshiba – Tsunakawa’s Reappointment as EO Is Probably the End for Kurumatani

By Mio Kato

Toshiba was down 5.4% today after its board chair downplayed the possibility of any quick decision on CVC’s preliminary, non-binding offer. It is now down 11.2% from the ¥4,805 high yesterday and is 14.7% below the indicative bid price of ¥5,000 suggesting limited confidence in a bid actually going through. This is not necessarily wrong, but there is much to consider here and some of Toshiba’s moves here are interesting.

Before it’s here, it’s on Smartkarma

Japan: Invesco Office J Reit, Visional Inc and more

By | Daily Briefs, Japan

In today’s briefing:

  • Starwood Hostile REIT Tender Launched
  • Visional Inc IPO – Pricey Hire
  • Visional IPO – Can the Valuation Bizreach ¥8,000 a Share?

Starwood Hostile REIT Tender Launched

By Travis Lundy

When Starwood Capital Group the other day announced its plans for a Tender Offer on Invesco Office J Reit (3298 JP) it did so saying it would pay ¥20,000/share. 

It was a surprise to Invesco Office J-REIT, apparently, and there was no other information provided in the announcement other than Starwood said that it was a good opportunity for existing investors to get out and for private ownership to improve the assets. The website Starwood was setting up to describe it was not yet functional. 

Yesterday, Starwood launched the Tender Offer itself. The details are somewhat…


By law, Invesco J-REIT has 10 days to respond with their opinion. There may be machinations in the background which could come out with a better result. But this situation is unprecedented, and the behavioural response of the current investor base is at best, untested. 

Visional Inc IPO – Pricey Hire

By Zhen Zhou, Toh

Visional Inc (4194 JP) is looking to raise up to US$609m in its Japan IPO.

Visional Inc. is a human resources (HR) technology company based in Japan. The company operates BizReach, an online recruiting platform that helps to connect professional job seekers to direct employers and third-party recruiters. It also offers HRMOS, which is a cloud-based human capital management (HCM) platform.

In this note, we share our thoughts on assumptions, valuation, and deal dynamics.

Visional IPO – Can the Valuation Bizreach ¥8,000 a Share?

By Mio Kato

Visional’s financials are a little difficult to unentangle as it combines Bizreach, which looks to be very profitable, with a number of growing and loss-making businesses, we believe that close scrutiny should reveal the excellent value on offer here.

Before it’s here, it’s on Smartkarma