Category

Japan

Daily Brief Japan: Kokusai Electric , Sankei Real Estate, Teikoku Sen-i Co., Ltd., Lawson Inc, Golf Digest Online, Japan System Techniques Co and more

By | Daily Briefs, Japan

In today’s briefing:

  • TOPIX “Big April Basket” 2024 Expectations: More High-Conviction Names; Better Trade Ideas
  • Sankei Real Estate (2972) Sponsor Buy Now On And It Isn’t Small (Even if the REIT Is)
  • Hidden Value in Plain Sight: Teikoku’s (3302) Potential Unlock
  • (Mostly) Asia M&A, Feb 2024: Lawson, Altium, CSR, TCM, Boral, APM, Roland DG, Ssangyong Cement
  • 4Q Follow-Up -Golf Digest Online | 3319
  • 3Q Follow-Up -Japan System Techniques | 4323


TOPIX “Big April Basket” 2024 Expectations: More High-Conviction Names; Better Trade Ideas

By Janaghan Jeyakumar, CFA

  • The Tokyo Stock Exchange (TSE) calculates Free-Float Weight (FFW) for each listed company and uses this value as a key component of TOPIX Index Calculation.
  • For companies with “low liquidity” the FFW will be multiplied by a fixed liquidity factor of 0.75 to derive the final FFW used for index calculation.
  • Every April, the application of this liquidity factor is reviewed by the TSE. In this insight, we take an early look at what could happen in April 2024.

Sankei Real Estate (2972) Sponsor Buy Now On And It Isn’t Small (Even if the REIT Is)

By Travis Lundy

  • Last October, I wrote about the plan the sponsor of Sankei Real Estate (2972 JP) had to exchange buildings with the REIT to clean it up, then buy more units.
  • Today they announced the completion of the Portfolio Rebalancing Plan started in March 2023. And the plan to buy more units. The assets transferred out were gone at end Jan-2024.
  • Now that’s done, and there are units to buy. Maximum 46,652 units over maximum 220 days.

Hidden Value in Plain Sight: Teikoku’s (3302) Potential Unlock

By Mark Chadwick

  • Teikoku, a stable disaster equipment leader, is undervalued due to excessive cash and cross-holdings.  
  • Regulatory pressure, industry trends, and potential Hulic asset sales create an opportunity to unlock hidden value.
  • Despite fair current pricing, potential share repurchases and improved capital allocation offer up to 40% upside.

(Mostly) Asia M&A, Feb 2024: Lawson, Altium, CSR, TCM, Boral, APM, Roland DG, Ssangyong Cement

By David Blennerhassett

  • For the month of February 2024, 15 new transactions (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$20bn.
  • The average premium for the new transactions announced (or first discussed) in February was ~33%.
  • This compares to the average premium for transactions in 2023 (117 transactions), 2022 (106), 2021 (165), 2020 (158), and 2019 (145 ) of 39%, 41%, 33%, 31%, and 31% respectively.

4Q Follow-Up -Golf Digest Online | 3319

By Sessa Investment Research

  • On the surface, FY23/12 consolidated OP -68% YoY, profit ATOP -53%, and FY24/12 initial guidance for a profit ATOP net loss may appear to indicate a challenging earnings environment.
  • However, closer examination reveals steady earnings improvement, and the new MTP through FY26/12 targets recouping major overseas growth investments.
  • The table below shows sequential improvement in the amount change YoY for Group EBITDA, OP and profit ATOP every quarter, with profits at all 9 levels posting YoY gains in the 4Q. 

3Q Follow-Up -Japan System Techniques | 4323

By Sessa Investment Research

  • 3Q Earnings Summary: In cumulative 3Q FY2024/3, Japan System Techniques recorded net sales of ¥18,527 mn (+11.4% YoY), operating profit of ¥1,614 mn (+3.5% YoY), ordinary profit of ¥1,648 mn (+2.7% YoY), and profit attributable to owners of parent (hereinafter, net profit) of ¥1,099 mn (-5.8% YoY).
  • Cumulative 3Q sales, operating profit, and ordinary profit came in at record highs.
  • Operating profit growth fell short of sales growth owing to planned increases in upfront investments for personnel expansion, education and training expenses, and IT infrastructure enhancements.

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Daily Brief Japan: Renesas Electronics, Welcia Holdings, Toshiba Corp, Aozora Bank Ltd, Tsuruha Holdings, RENOVA Inc, Tokyo Metro and more

By | Daily Briefs, Japan

In today’s briefing:

  • Renesas (6723) – YET ANOTHER Clean-Up Block Trade – This Time Mitsubishi Elec
  • Tsuruha (3391) And Welcia (3141) – Aeon Tsuruha Stake Buy Followed by Merger! [Redux]
  • Beyond the Bubble: A Deep Dive into the Forces Behind the Nikkei Index Surge
  • Aozora Bank (8304 JP): Murakami Becomes a Substantial Shareholder
  • JAPAN ACTIVISM:  Is Murakami-San Going To Do A PacMetals Rug Pull on Aozora? Or Is This For Real?
  • Renesas Electronics Block – Smaller than Recent Deals but Still Likely Well Flagged
  • Aeon (8267 JP), Tsuruha (3391 JP) And Welcia (3141 JP)’s Long-Dated Plan
  • Quiddity JPX-Nikkei 400 Rebal 2024: End-Feb 2024 Estimates
  • Aeon (Maybe) Gets Tsuruha, Could Trigger Wave of Mergers in the Sector (And Beyond)
  • Tokyo Metro IPO Early Look – Could Raise Around US$2bn While Still Recovering from COVID


Renesas (6723) – YET ANOTHER Clean-Up Block Trade – This Time Mitsubishi Elec

By Travis Lundy

  • Today after the close, Mitsubishi Electric (6503 JP) announced the sale of its position in Renesas Electronics (6723 JP). That’s 50,706,800 shares.  
  • This is the third large block in four months (Renesas in November for 223mm shares, NEC and Hitachi in January 2024 for 123mm shares).
  • This is smaller, and reasonably well-flagged. Index demand is longer-dated.

Tsuruha (3391) And Welcia (3141) – Aeon Tsuruha Stake Buy Followed by Merger! [Redux]

By Travis Lundy

  • The first piece had a question mark in the title. This one has an exclamation point. The exclamation point has value for one investor. Other people? Not so much.
  • Today post-close we got the deal. I was a little surprised it came this fast, but it’s now mostly done it appears – largely as predicted in the last piece.
  • There are things one can probably read into the details. It is probably worth thinking about those, and how those details affect the industry. 

Beyond the Bubble: A Deep Dive into the Forces Behind the Nikkei Index Surge

By Nimish Maheshwari

  • Japan’s Nikkei Stock Average has surged past its 1989 peak, fueled by global investor interest, corporate reforms, and innovative investment initiatives like the Nippon Individual Savings Account (NISA).
  • This resurgence marks a significant milestone in Japan’s economic landscape, reflecting renewed investor confidence, structural reforms, and potential growth opportunities in the market.
  • The Nikkei’s surpassing of its previous peak signals a shift in perception towards Japan’s market potential, prompting investors to reconsider the country’s economic trajectory and explore new avenues for investment.

Aozora Bank (8304 JP): Murakami Becomes a Substantial Shareholder

By Arun George

  • Murakami’s entity, City Index Eleventh, reported a 5.42% shareholding in Aozora Bank Ltd (8304 JP). Murakami started buying a day after the disastrous 3QFY23 results.
  • Murakami’s average buy-in price is JPY2,137.88 per share, a 34% discount to the pre-3QFY23 results share price. 
  • Murakami’s disclosure suggests two possibilities: the start of an activist campaign or a short-term trading play replicating the Pacific Metals (5541 JP) playbook.

JAPAN ACTIVISM:  Is Murakami-San Going To Do A PacMetals Rug Pull on Aozora? Or Is This For Real?

By Travis Lundy

  • Yesterday after the close, well-known Japanese activist Murakami-san’s preferred entity City Index Eleventh filed a Large Shareholder Report. 
  • The blast across Bloomberg was “*AOZORA 5.4% STAKE REPORTED BY CITY INDEX ELEVENTH.” Sounds exciting after the shares dropped 34% in two days earlier this month after reporting big writedowns. 
  • But there has to be a question here. Why? And Why this way? And what kind of activism would be possible? 

Renesas Electronics Block – Smaller than Recent Deals but Still Likely Well Flagged

By Ethan Aw

  • Mitsubishi Electric (6503 JP) is looking to raise approximately US$800m through an accelerated secondary block deal, via selling 50.71m shares (2.6% of TSO) of Renesas Electronics (6723 JP) stock. 
  • The deal will be an easy one to digest at only three days of three month ADV.
  • In this note, we will talk about the placement and run the deal through our ECM framework.

Aeon (8267 JP), Tsuruha (3391 JP) And Welcia (3141 JP)’s Long-Dated Plan

By Arun George

  • Aeon Co Ltd (8267 JP), Tsuruha Holdings (3391 JP) and Welcia Holdings (3141 JP) have announced an alliance to establish the largest drugstore alliance in Japan by December 2027.
  • Aeon will carry out several Tsuruha transactions – buy Oasis 13.58% stake at JPY15,500 per share and, on receiving regulatory approval, reach 27.17% of the voting rights.  
  • The agreements involve merging Tsuruha and Welcia through a share exchange offer and Aeon subsequently increasing its Tsuruha voting rights from 27.17% to less than 51%. 

Quiddity JPX-Nikkei 400 Rebal 2024: End-Feb 2024 Estimates

By Janaghan Jeyakumar, CFA

  • JPX-Nikkei 400 is composed of common stocks listed on the Tokyo Stock Exchange. It is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents.
  • A periodic review is conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year. We look at the rankings of the potential ADDs/DELs every month.
  • Below is a look at potential ADDs/DELs for the JPX-Nikkei 400 index rebal event to come in August 2024 based on trading data as of end-February 2024.

Aeon (Maybe) Gets Tsuruha, Could Trigger Wave of Mergers in the Sector (And Beyond)

By Michael Causton

  • Aeon will almost definitely increase its stake in Tsuruha Holdings, which on its own will catalyse drugstore competitors to consider their mergeable options.
  • Tsuruha MAY merge with Welcia under Aeon and just talk of this will catalyse drugstore competitors even more.
  • But the ongoing fusion of drugstore retailing and FMCG formats like supermarkets and convenience stores, will also spur the entire FMCG sector to respond to Aeon’s massive potential dominance.

Tokyo Metro IPO Early Look – Could Raise Around US$2bn While Still Recovering from COVID

By Sumeet Singh

  • Tokyo Metro (TKYMETRO JP)’s shareholders, the Japanese and Tokyo Metropolitan Governments, could look to raise up to US$2bn by selling half of their stake via an IPO.
  • Tokyo Metro is one of the two metro network operators in the Tokyo region. It operates nine subway lines.
  • In this note, we take an early look at the possible listing.

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Daily Brief Japan: Toei Animation, Rakuten Group , Outsourcing Inc, Aeon Co Ltd, Olympus Corp and more

By | Daily Briefs, Japan

In today’s briefing:

  • Toei Animation (4816 JP) – This Offering Could Be Heavy; the NEXT Offering Is More Interesting
  • Rakuten’s New “Bond-Type Share” Issuance – Quite Quirky to Quantulate Rakuten’s Quisquous New Quoz
  • Outsourcing (2427) MBO Arrives! Bain Launches Cheeky, Opportunistic, Low(Priced) TOB
  • Outsourcing (2427 JP): Relief as Bain Launches Tender at Unchanged Terms
  • Aeon: Logistics Issues Drive Efficiency
  • Olympus Corp (7733 JP): Q3 Operating Profit Misses Estimates Despite Sales Beat; FY24 Guidance Cut


Toei Animation (4816 JP) – This Offering Could Be Heavy; the NEXT Offering Is More Interesting

By Travis Lundy


Rakuten’s New “Bond-Type Share” Issuance – Quite Quirky to Quantulate Rakuten’s Quisquous New Quoz

By Travis Lundy

  • Today, Rakuten Group (4755 JP) announced it would propose an amendment to its Articles at the AGM (28 March) to issue “Bond-Type Class Shares.”   First reaction: You wot, mate?
  • The company states it wants to “strengthen its financial base through reducing interesting-bearing debt by equity-related financings and conduct proactive control of debt maturity schedule, etc.”
  • Now it wants to issue listed bond-type shares. Dividends not interest. The last Japanese issuer of something similar was NEC in 2001. Few will remember, so we study the situation.

Outsourcing (2427) MBO Arrives! Bain Launches Cheeky, Opportunistic, Low(Priced) TOB

By Travis Lundy

  • After an extension due to a European Foreign Subsidies Review filing, and a small ‘accident’ regarding the earnings release, we have a deal. 
  • The earnings release itself seemed more innocuous than articles and rumour suggested show the causes of impairments and so it seemed like there was little cause to walk/declare MAC.
  • Now it will be done in 20 days. I still think this is cheeky, opportunistic, and low, and it is up to the float to decide what to do.

Outsourcing (2427 JP): Relief as Bain Launches Tender at Unchanged Terms

By Arun George

  • Outsourcing Inc (2427 JP) announced that the pre-condition was satisfied, and Bain’s tender offer remains unchanged at JPY1,755 per share, a 52.1% premium to the undisturbed (8 December).
  • Shareholders will breathe a sigh of relief as the weak 4Q and significant impairments have raised concerns that Bain would cut its offer or walk away.
  • The offer attractiveness has increased partly due to lower consensus. At the last close and for a 3 April payment, the gross/annualised spread is 2.0%/22.8%.

Aeon: Logistics Issues Drive Efficiency

By Michael Causton

  • Restrictions on driver overtime due in April are forcing logistics rationalisation across supply chains.
  • Aeon is one of the few retailers that runs its own logistics platforms but, even so, changes to logistics practices will feed through to how stores are merchandised
  • This could result in competitive pressure on smaller supermarket chains.

Olympus Corp (7733 JP): Q3 Operating Profit Misses Estimates Despite Sales Beat; FY24 Guidance Cut

By Tina Banerjee

  • Olympus Corp (7733 JP) announced disappointing Q3FY24 result. Although revenue increased 7% YoY to ¥239B, beating estimate of ¥236B, operating profit declined 30% YoY to ¥34B, below estimate of ¥43B.
  • The company cut FY24 operating profit guidance for second time and reduced revenue guidance after raising it in November. Noto Peninsula earthquake is the main reason for reducing revenue guidance.
  • Although both revenue and profits are expected to improve in FY25, it will be difficult to achieve an operating margin of 20% and sales growth of 5%.

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Daily Brief Japan: Tsuruha Holdings, Rakuten Bank , Toei Animation, Keisei Electric Railway Co, Appier Group, Rakuten Group , Carta Holdings, Inc., TSE Tokyo Price Index TOPIX, Morito Co Ltd and more

By | Daily Briefs, Japan

In today’s briefing:

  • Tsuruha (3391) And Welcia (3141) – Aeon Tsuruha Stake Buy Followed by Merger?
  • Rakuten Bank (5838 JP) – Introduces a Yutai Program to Goose the Mar24 Price, Mar25 EPS
  • Toei Animation (4816 JP): The Current Playbook
  • Aeon, Welcia and Tsuruha: Creating an FMCG Behemoth
  • StubWorld: Keisei Electric Appears Stretched Amid Latest Buyback
  • Appier (4180) | A Volatile Stock Despite Solid SaaS Metrics
  • Morning Views Asia: Rakuten Group
  • Full Report – Carta Holdings (3688 JP)
  • Companies with High Stock Valuations and High Profitability Will Increasingly Attract Investment
  • Initiation – Morito (9837 JP)


Tsuruha (3391) And Welcia (3141) – Aeon Tsuruha Stake Buy Followed by Merger?

By Travis Lundy

  • Over the weekend there was an article in the Nikkei saying that Tsuruha Holdings (3391 JP) and Welcia Holdings (3141 JP) were considering a merger. Other media outlets followed.
  • This has been a possible outcome. Aeon Co Ltd (8267 JP) owns 51% of Welcia, 13.6% in Tsuruha, and is negotiating to buy another 13% in Tsuruha from Oasis.
  • This would create a behemoth. ¥2.2trln in revenues vs ¥1trln for MatsukiyoCocokara (3088 JP). It would be 25% of the market. Questions will be asked about concentration. 

Rakuten Bank (5838 JP) – Introduces a Yutai Program to Goose the Mar24 Price, Mar25 EPS

By Travis Lundy

  • The Rakuten Bank offering in early December was a great time to buy the dip of you sold end-September. It should have been a good time to buy outright.
  • Unfortunately, the stock priced at ¥2,470, then closed that day at ¥2,500. That was the high for the next ten weeks. Two weeks later it was 20% lower. Ouch.
  • But it climbed out of the abyss, gained 35% in 8wks, then Thursday the Bank announced a new Shareholder Benefit program. Today the stock was +7%. Worth looking at details.

Toei Animation (4816 JP): The Current Playbook

By Arun George

  • Since the US$550 million secondary placement announcement, Toei Animation (4816 JP)’s shares are down 7.0% from the undisturbed price of JPY18,560 per share (14 February).
  • Looking at recent large Japanese placements is instructive to understand the potential trading pattern. So far, Toei Animation’s shares have followed the pattern of previous large placements.
  • The offering will likely be priced on 27 February. Investors participating in previous large Japanese placements tend to secure positive returns.

Aeon, Welcia and Tsuruha: Creating an FMCG Behemoth

By Michael Causton

  • The possible merger between Welcia and Tsuruha under Aeon has been talked about for years despite concerns from both drugstores, but may now happen.
  • But calling these retailers drugstores is increasingly a misnomer: FMCG-drugstores is better because they and many others in the sector, increasingly compete with FMCG retailers like supermarkets and even CVS.
  • This evolution is rapid so the merits of a deal make more sense when we view it from a sector five years in the future than how it is today.

StubWorld: Keisei Electric Appears Stretched Amid Latest Buyback

By David Blennerhassett

  • Keisei Electric (9009 JP) has been an outperformer since activist fund Palliser Capital called on the company sell some Oriental Land (4661 JP) shares. It has now announced another buyback.
  • Preceding my comments on Keisei Electric are the current setup/unwind tables for Asia-Pacific Holdcos.
  • These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

Appier (4180) | A Volatile Stock Despite Solid SaaS Metrics

By Mark Chadwick

  • Post FY23 results in mid-February, Appier’s stock exhibited significant volatility, despite robust financial performance.
  • We believe that Appier is a beneficiary of continued growth in ecommerce and increasing ubiquity of AI solutions for marketing.  
  • Appier trades at a significant discount to global peers and domestic SaaS companies, suggesting significant upside

Morning Views Asia: Rakuten Group

By Leonard Law, CFA

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.


Full Report – Carta Holdings (3688 JP)

By Sessa Investment Research

  • CARTA HD strives to become “The Evolution Factory” and operates mainly in the digital marketing field.
  • The company was established in January 2019 through the merger of the former VOYAGE Group, which had expanded earnings by creating a series of new businesses centered on the ad tech domain, and the former Cyber Communications, the largest media rep firm in Japan.
  • CARTA HD holds a 3.9% share in the Japanese online advertising market.

Companies with High Stock Valuations and High Profitability Will Increasingly Attract Investment

By Aki Matsumoto

  • P/B’s slightly higher valuations in October 2023 while ROE, EPS, and BPS did not change much were due to external factors, not internal factors.
  • Clearly, improvements in ROE and ROA are effective in improving stock valuations, but valuations have further increased for companies with higher valuations and profitability for the past year.
  • Some of these companies have begun to use cash more effectively for investment and shareholder returns. The gap in market capitalization between these companies and the rest will increasingly widen.

Initiation – Morito (9837 JP)

By Sessa Investment Research

  • With an apparel business, product business, and transportation business, MORITO CO.‚ LTD., (Morito) conducts planning, development, and sales of products that reflect market needs and customer demands.
  • The products it sells are either produced in house or purchased from suppliers.
  • Handling an extremely diverse range of products that total more than 500 thousand, the company sells those products in niche markets.

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Daily Brief Japan: Keisei Electric Railway Co and more

By | Daily Briefs, Japan

In today’s briefing:

  • Keisei Electric Rail (9009) – A BUYBACK! But It’s Likely To Be Crossholders Selling in ToSTNeT-3


Keisei Electric Rail (9009) – A BUYBACK! But It’s Likely To Be Crossholders Selling in ToSTNeT-3

By Travis Lundy

  • Keisei Electric Railway Co (9009 JP) has long been the target of activist-ish-y holders who seek to have the company monetise its 20+% stake in Oriental Land (4661 JP)
  • Last autumn (17-Oct-2023), Keisei was the subject of a presentation by activist-ish-y fund Palliser Capital who called the stock 43% undervalued. They want Keisei to sell some OLC shares.
  • Palliser wanted Keisei to use resulting monies for growth capex+shareholder return, improve IR/governance, shrink board, adopt KPIs, etc. Thursday we got an announcement of a 2.9% stock buyback. 

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Daily Brief Japan: Outsourcing Inc, TSE Tokyo Price Index TOPIX and more

By | Daily Briefs, Japan

In today’s briefing:

  • Last Week in Event SPACE: Outsourcing, Boral, Itoki, CIMC Vehicle, Dissentient Shareholder Rights
  • When Will Deflationary Mindset of Managers Disappear? Some Companies Have Begun to Change, Though


Last Week in Event SPACE: Outsourcing, Boral, Itoki, CIMC Vehicle, Dissentient Shareholder Rights

By David Blennerhassett

  • There is no suggestion of precondition breach attached to Outsourcing Inc (2427 JP)‘s impairment losses. 
  • Seven Group, now holding 71.6%, has returned to the well, and made a cash/scrip Offer for shares not owned in Boral (BLD AU), with certain tendering thresholds triggering more cash.
  • Itoki Corp (7972 JP)‘s mega ToSTNeT-3 buyback is now done.

When Will Deflationary Mindset of Managers Disappear? Some Companies Have Begun to Change, Though

By Aki Matsumoto

  • Overseas investors have increased buying Japanese stocks in anticipation of acceleration in profit growth due to the shift to inflation. This is consistent with the trends of ROE and TOPIX.
  • As far as ROE trends are concerned, neither share buybacks nor dividends are sufficient. It may be said that many managers are still dominated by a deflationary mindset.
  • Companies with high foreign shareholdings are seeing changes that are starting to use cash more effectively. However, it’ll take time, as most companies will start to move after asking around.

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Daily Brief Japan: Sony Corp and more

By | Daily Briefs, Japan

In today’s briefing:

  • Sony Corporation: Expansion of smartphone market


Sony Corporation: Expansion of smartphone market

By Baptista Research

  • Based on the Q3 consolidated financial results announcement for Sony Group Corporation for FY 2023, the company showed considerable resilience against some difficult market conditions.
  • One critical highlight was the significant increase of 22% in consolidated sales for the quarter compared to the same quarter the previous fiscal year, reaching a record high of JPY 3,747.5 billion.
  • Notably, the operating income and net income also increased substantially year-on-year and reached the second-highest level on a quarterly basis.

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Daily Brief Japan: SUMCO Corp, Fast Retailing, Trial Holdings, Geniee Inc, TSE Tokyo Price Index TOPIX, LaKeel and more

By | Daily Briefs, Japan

In today’s briefing:

  • SUMCO’s Sobering Outlook For Silicon Wafers
  • HK CEO & Director Dealings (23 Feb 2024): Fast Retailing, Far East Consortium, Pharmaron Beijing
  • Trial Holdings IPO: The Investment Case
  • Geniee (6562) – Record-High Gross Profits and Recognizing Challenges
  • Whatever the Proxy Voting Advisor’s Criteria, It Is How Investors Actually Conduct Themselves
  • LaKeel (4074) – Ready for the Next Growth Phase


SUMCO’s Sobering Outlook For Silicon Wafers

By William Keating

  • Q423 revenues of ¥105.1 billion, about 5% better than forecasted, up 5% QoQ but down ~10% YoY.
  • Q124 revenues forecasted to decline 17% QoQ to ¥87 billion. Not surprisingly, EBITDA will also decline 33% QoQ to ¥22.1 billion.
  • On a brighter note, demand growth driven by generative AI will roughly double wafer demand for servers (AI+General) by 2027

HK CEO & Director Dealings (23 Feb 2024): Fast Retailing, Far East Consortium, Pharmaron Beijing

By David Blennerhassett


Trial Holdings IPO: The Investment Case

By Arun George

  • Trial Holdings (5882 JP), a discount store operator in Japan, is seeking to raise US$235 million at the IPO reference price of JPY1,550 per share. Pricing on 11 March.
  • Trial aims to act as a one-stop shopping store where consumers can buy whatever they want at a great price. Trial’s basic pricing strategy is Every Day Low Price.
  • The investment case rests on steady revenue growth, industry-leading same-store sales growth, solid margin profile and cash generation.

Geniee (6562) – Record-High Gross Profits and Recognizing Challenges

By Astris Advisory Japan

  • Heading in a positive direction – we saw the following positives in Q1-3 FY3/24 results; 1) sustained growth trend in quarterly gross profits, 2) all business segments generating positive returns, and 3) signs of progress regarding post-merger integration at Zelto Inc., which recorded strong monthly sales in November 2023.
  • The company has maintained FY3/24 guidance, implying an accelerating Q4 sales growth YoY from a seasonal upturn in activity.
  • We believe that Zelto Inc. will provide growth opportunities in overseas markets.

Whatever the Proxy Voting Advisor’s Criteria, It Is How Investors Actually Conduct Themselves

By Aki Matsumoto

  • Since many prime market listed companies have already achieved the gender and TCFD criteria, this will unlikely to be a major issue with regard to Glass Lewis’ criteria changes.
  • The ROE for the exception rule for companies with large policy shareholdings should have been even higher, not the same as the TSE’s 5-year average ROE of 8%.
  • The criteria for maximum tenure of outside directors should not have provided magic number, but rather performance and other factors that would determine whether he/she is qualified for the position.

LaKeel (4074) – Ready for the Next Growth Phase

By Astris Advisory Japan

  • Encouraging signs with a positive turnaround in Q4 FY12/23 – Q1-4 FY12/23 results were in line with company guidance, with Q4 FY12/23 demonstrating a major pick-up in LaKeel Product license sales resulting in a recovery in profitability QoQ.
  • This was a welcome development from project delays experienced in Q3 FY12/23 and highlights positive underlying demand for LaKeel’s technology.
  • Company guidance for FY12/24 reflects expectations of high double-digit sales and earnings growth YoY, and we believe this will be driven by intensifying efforts by LaKeel to increase market penetration of their technology.

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Daily Brief Japan: Gree Inc, Itoki Corp, Trial Holdings, Asahi Kagaku Kogyo, Honeys Holdings Co., Ltd., TSE Tokyo Price Index TOPIX, Sodick Co Ltd, Takara Bio Inc and more

By | Daily Briefs, Japan

In today’s briefing:

  • Gree (3632 JP) – Overnight Offering in Asset-Rich Value Trap as KDDI Sells Out
  • Itoki (7972 JP) – Worth Thinking About Post Mega ToSTNeT-3 Buyback
  • Trial Holdings Pre-IPO – Updated Peer Comparison and Valuation
  • Asahi Kagaku Kogyo
  • Sweet Honeys: A Profit Machine
  • Investors Want to See a Shift in Management to Create Value, Not Just Meet Government Target Numbers
  • Sodick (6143) – Aiming to Revitalize the Business Model
  • Takara Bio (4974 JP): Limited Upside Potential Amid Poor Financial Result and Bleak Outlook


Gree (3632 JP) – Overnight Offering in Asset-Rich Value Trap as KDDI Sells Out

By Travis Lundy

  • Today after the close, KDDI Corp (9433 JP) and Gree Inc (3632 JP) announced that KDDI would offer its 8,000,000 shares in Gree in an international offering through Mizuho Intl.
  • The deal comes at a decently large discount and the stock is quite downtrodden. Especially when compared to its venture assets and cash, assuming invested amount is remotely viable.
  • The problem is that too much of revenue isn’t earning much, so this sits in a Value Trap category. Shareholder structure makes it difficult to do buybacks.

Itoki (7972 JP) – Worth Thinking About Post Mega ToSTNeT-3 Buyback

By Travis Lundy

  • As discussed in Itoki (7972) Mammoth Buyback Coming Imminently After 35% Jump, the company was going to do a mega ToSTNeT-3 buyback between then and end-Feb. That happened this morning.
  • The company bought back 7.966mm shares (13.96%) for ¥15.9bn. That should have cleared out the bulk of the risk of the original warrant holders who bought in 2020. But…
  • The dilution/accretion don’t offset perfectly, and there is a clause suggesting how this might play out from here. But we can infer things from other data we now have.

Trial Holdings Pre-IPO – Updated Peer Comparison and Valuation

By Sumeet Singh

  • Trial Holdings (5882 JP) (TH) is now looking to raise around US$234m in its Japan IPO, after having canceled its prior listing attempt last year.
  • TH operates a network of retail stores that offer one-stop shopping under its everyday low price model, across a variety of daily necessities, food items and other products.
  • We have looked at the company’s past performance in our previous notes. In this note, we provide our updated thoughts on valuation.

Asahi Kagaku Kogyo

By Altay Capital

  • Asahi Kagaku Kogyo’s Facility in Kunshan, China Asahi Kagaku Kogyo (TYO 7928) is a $12m market cap net-net industrial plastics manufacturer that over the last 10 years mostly operates around breakeven.
  • The business itself isn’t interesting, but it’s a positive that they aren’t losing money.
  • There also isn’t a single writeup on this company or any mentions of it on X/Twitter, so it’s definitely under the radar.

Sweet Honeys: A Profit Machine

By Michael Causton

  • Low cost apparel retailers have enjoyed a significant uptick in the past few years as consumers look to polarise their spending further between cheaper basics and luxury treats. 
  • But the real change is in improving profitability. One the biggest beneficiaries has been Honeys, a low cost womenswear retailer that has seen a revival in the past few years.
  • Operating profit has tripled since 2018. Can it last? Work on creating its own low cost manufacturing base suggests it can.

Investors Want to See a Shift in Management to Create Value, Not Just Meet Government Target Numbers

By Aki Matsumoto

  • In 2023, % Woman Board Members increased progressively even in companies with lower corporate governance scores. Many companies are unanimous in their commitment to appointing women board members.
  • Together with the fact that business challenges have not been solved by only having people who think alike, 90% of institutional investors said that information on women’s activities is important.
  • Companies with over 25% women on their boards have superior values in profitability and stock valuation. Managers should implement the promotion of women in order to transition to value-creating management.

Sodick (6143) – Aiming to Revitalize the Business Model

By Astris Advisory Japan

  • Q1-4 FY12/23 results were weaker than our estimates with the company revising down FY guidance.
  • Orders for the mainstay electric discharge machines fell 24% YoY in Q4 FY12/23 with China demand remaining sluggish.
  • However, there are positive indications that the company aims to transform its business model by conducting cost reductions, streamlining the balance sheet, and bringing greater focus to its business strategy. 

Takara Bio (4974 JP): Limited Upside Potential Amid Poor Financial Result and Bleak Outlook

By Tina Banerjee

  • Takara Bio Inc (4974 JP) reported massive decline of 50%, 98%, and 99%, YoY, in revenue, operating profit, and net profit, respectively during the first nine months of FY24.
  • Reagents revenue decline 56% YoY to ¥23 billion, due to decrease of sales of COVID-19 test-related reagents. Japan, which contributed 23% of reagents revenue, reported revenue decline of 83% YoY.
  • Takara Bio anticipates a sluggish life science R&D market globally. FY24 revenue, operating profit, and net profit are expected to decline 42%, 85%, and 88%, YoY, respectively.

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Daily Brief Japan: Snow Peak Inc, PAL GROUP Holdings Co., Ltd., Dentsu Inc, Otsuka Holdings, Polaris Holdings and more

By | Daily Briefs, Japan

In today’s briefing:

  • Snow Peak (7816) – Bain Deal at ¥1,250 – 46% Premium Is Nice, Not A Home Run
  • Snow Peak (7816 JP): Bain-Backed MBO at JPY1,250
  • Pal Group: Another Record as Founder Retires
  • Dentsu Group – Return to organic growth forecast for FY24
  • Otsuka Holdings (4578 JP): Impairment Charges Bite 2023 Profit; 2024 Guidance Initiated
  • Polaris Holdings (3010) – Strong Underlying Growth Profile to Continue


Snow Peak (7816) – Bain Deal at ¥1,250 – 46% Premium Is Nice, Not A Home Run

By Travis Lundy

  • The possibility/likelihood of a “¥50bn MBO” for Snow Peak Inc (7816 JP) was leaked in a Nikkei article last Friday. It went limit up two days in a row. 
  • That TOB price is more than 70% off its three-year high. That will certainly disappoint some. Separately, the price seems a bit low given growth. 
  • The family and friends own ~42% so if someone gets upset, or uppity, there could be a challenge. Just because an MBO exists doesn’t mean people have to tender in.

Snow Peak (7816 JP): Bain-Backed MBO at JPY1,250

By Arun George

  • Snow Peak Inc (7816 JP) has recommended a Bain Capital-sponsored MBO tender offer at JPY1,250 per share, a 58.0% premium to the undisturbed price (15 February). 
  • The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the tender offer is set at a 38.13% ownership ratio.
  • Based on the irrevocables, the minimum acceptance condition requires a 52.8% minority acceptance rate. While not a knockout offer, the acceptance condition is achievable.  

Pal Group: Another Record as Founder Retires

By Michael Causton

  • Pal Group’s founder retired last month after 50 years at the helm. 
  • Since 2001, the fashion to variety store business has grown from ¥10 billion to a forecast ¥184 billion this year.
  • There remains growth potential in the variety store chain, 3Coins, as well as a revival in the fashion side.

Dentsu Group – Return to organic growth forecast for FY24

By Edison Investment Research

Dentsu’s FY23 net revenue was a touch above guidance at Q3, with a better-than-expected operating margin reflecting a good Q4 in Japan, further boosted by a short delay in an IT project pushed out to Q124. The results were accompanied by the news of a change in global CFO, with the role reverting to Yushin Soga, who held the role until January 2023. As anticipated, net revenue outside Japan declined, although there was some trading improvement in the US in Q4. A thorough business review is now in progress, with the next mid-term plan due early in H2. In the meantime, the balance sheet is strong, with leverage reduced to 0.6x EBITDA, and share buybacks will be resumed. We regard the rating as undemanding.


Otsuka Holdings (4578 JP): Impairment Charges Bite 2023 Profit; 2024 Guidance Initiated

By Tina Banerjee

  • Otsuka Holdings (4578 JP) ended 2023 on a mixed note. Both revenue and business profit were ahead of guidance. However, operating and net profits missed guidance, dragged by impairment loss.
  • Four global pharmaceutical products as well as the nutraceuticals business led the business performance. Even after excluding the impact of foreign exchange, the business remained above plan.
  • The company has guided for 6% YoY growth in 2024 revenue and business profit to ¥2,140B and ¥330B, respectively. 2024 net profit is expected to jump 106% YoY to ¥250B.

Polaris Holdings (3010) – Strong Underlying Growth Profile to Continue

By Astris Advisory Japan

  • Hotel demand ahead of expectations – Q1-3 FY3/2024 results were driven by strong underlying demand for hotel operations.
  • The domestic business was boosted by a robust market environment where visitor numbers for domestic and overseas customers exceeded pre-pandemic levels, helping drive Q3 FY3/2024 RevPAR by 43.5% YoY.
  • Despite a high run rate versus company guidance for sales and exceeding recurring profit and net income, there has been no revision from the company, indicating a potential for an overshoot in our view. We believe inbound and domestic demand will be sustained.

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