Japan

• I summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads: Mayne Pharma (MYX AU), Yichang HEC Changjiang Pharma (1558 HK), ENN Energy (2688 HK), Pacific Industrial (7250 JP), Santos Ltd (STO AU), Smart Share Global (EM US). 
• Lowest spreads: Bright Smart Securities (1428 HK), Hainan Meilan International Airport (357 HK), Humm Group (HUM AU), New World Resources (NWC AU), Nippon Concept (9386 JP).

• The MBO for Pacific Industrial (7250 JP) starts with the father+son Chairman and CEO, – combined stake 2.92% – putting nothing in to buy this, with help from banks.
• The Takeover Price is priced at 0.7x book, and a Net Debt to EBITDA of 2x (when adjusted for securities+pension assets+DTLs) and 5-6x average 2026-2030 FCF.
• This is being done too cheap: Toyota is the main customer, one third of revenues comes from Japan, and the company is set for a transition to EVs.

• Ahead of the Bank of Japan’s 31 July 2025 policy meeting, markets broadly expect rates to remain on hold at 0.5%.
• The new US–Japan trade deal may influence the tone of the upcoming quarterly outlook—if not the rate decision itself.
• With limited precedent for rate changes but a high rate of surprises when they do occur, this Insight combines historical data with option-implied volatility to help investors assess tail risks.

• It seems unlikely that there’ll be an increase in formal criteria for corporate governance, like in the previous revision. It looks like there’ll be more demand for human capital disclosure.
• Many companies don’t fully understand human capital, and there’s concern that achieving disclosure criteria will become the goal, rather than original objective of investing in human capital to create value.
• The revised Corporate Governance Code requires verification that management resources are being appropriately allocated to investment and shareholder returns. It seems that simpler questions are better than difficult “technical terms.”

• Earlier this month, Substack writer Gezzogero mentioned AeroEdge (7409 JP) (7409 JP — US$88 million) on his blog.
• I thought it was a fantastic write-up and wanted to dig into it myself.
• The company is a supplier of aircraft components. It manufactures low-pressure turbine blades for the well-regarded LEAP jet engine, which is used in narrow-body aircraft such as the Airbus (AIR FP) A320neo and Boeing (BA US) 737 MAX.

• Chugai Pharmaceutical (4519 JP) reported 5% YoY rise in core revenue in 1H25, as overseas sales grew 7% YoY and domestic market revenue was up 3%.
• Actemra witnessed growth in both overseas and domestic market. Hemlibra overseas sales stood at ¥151B (30% of total sales), down 6% YoY.
• In 1H25, two significant developments that happened are successful P3 trial of orforglipron and positive results from phase I/II study of NXT007.

• Capacity utilization at Sumco’s largest customer, TSMC, jumped 10% in Q2, with another core customer, Renesas, showing consecutive improvements.
• Surging AI chip demand and geopolitical shifts favoring non-Chinese suppliers are set to boost demand for high-end silicon wafers.
• The stock trades at 0.7x book and 4.9x EV/EBITDA. These are levels we think the stock can make a meaningful upward advance from if the improvement in customer inventories broadens.

• Although Taiyo Kagaku is not a household name among consumers in Japan, it has a strong reputation in Japan and internationally among F&B companies for functional, health-enhancing ingredients.
• Three main reasons we like the stock include strong loyal customers in the F&B segment in Japan/internationally, solid growth of sales and profits, and attractive valuations. 
• Taiyo Kagaku currently has a SmartScore of 4.6 out of 5 which is among the top ranking stocks in the Japanese stock market. 

• Revenue increased by 40.9% YoY to JPY7.2bn, with operating profit up 67.6% YoY to JPY2.7bn.
• Capital gains reached JPY3.2bn (+29.7% YoY), primarily from listed shares, with an investment multiple of 2.1x.
• Total investment executed was JPY6.8bn, with JPY3.2bn in domestic VC investments, averaging 20.4% equity stakes.

• Pacific Industrial (7250 JP) has recommended an MBO at JPY2,050, a 16.4% premium to the last close price and a 40.3% premium to the undisturbed price.
• While the offer is below book value (P/B of 0.71x), it represents an all-time high and is above the mid-point of the IFA DCF valuation range. 
• Pacific Industrial has no history of activism. Therefore, the offer will succeed at current terms unless there is vocal opposition or an activist becomes a substantial shareholder. 

• We believe that the Japanese-US trade deal helps to decrease uncertainty on monetary policy, with a potential rate rise in the near term improving the outlook for Japanese banks
• We remove our short on Rakuten Bank, as it is one of the beneficiaries of a near term potential rise in benchmark rates going forward
• In terms of PBV ratio, Seven Bank still trades at a 70%+ discount to Rakuten Bank’s PBV but the latter is impacted by the near-term interest rate outlook change

• Tsubakimoto Kogyo Co., Ltd., (hereafter, the Company) is an industrial equipment–related trading company founded in 1916 with a history that goes back more than a century.
• Its strength lies in technological expertise developed through years of collaboration between the Engineering and Construction Management Departments, which gives the company a strong competitive advantage.
• The company also leverages co- development and strategic alliances starting from the research stage for products with leading market share, such as power transmission chains and platform screen doors. 

• Context: On 23 July 2025, Toyota Motor (7203 JP) surged 14.3%, driven by macro factors tied to tariffs. This Insight examines how that sharp move affected the stock’s volatility surface.
• Key Observations: Implied volatility spiked to extreme percentiles, with two-week IV hitting the 99th–100th percentile. Skew dynamics show otm calls becoming historically rich relative to puts.
• Opportunity: Elevated implied volatility and historically flat skew present an attractive setup for a zero-cost option strategy.

• Overnight, the Nikkei carried an article saying Toyota valve supplier Pacific Industrial (7250 JP) would go private at a 40% premium in an MBO. 
• The implied price would match its ATH, but would remain far below book value, which is disappointing for a company with a very strong customer base and market share.
• This is potentially blockable, but it would need to be activism from scratch I think. An activist or collection of them would need about 18-20% to block this deal.

• Sales rose 4.7% YoY, driven by IT solutions business growth; net income declined 6.4% YoY due to absent extraordinary gain.
• CMJ revised FY12/25 forecasts: operating profit to JPY57.0bn (+7.3% YoY), recurring profit to JPY58.0bn (+6.6% YoY).
• IT solutions sales projected to grow YoY, with a 7% increase in SI services and 10% in outsourcing.

• Kasumigaseki Hotel REIT (401A JP)  is looking to raise up to US$195m in its upcoming Japan IPO.
• It is a REIT with hotel assets  sponsored by affiliated developer, Kasumigaseki Capital (3498 JP).
• In this note, we examine the IPO dynamics, and undertake a peer comparison.

• In Q1 FY03/26, the company reported revenue of JPY4.0bn (+2.4% YoY) and net income of JPY348mn (-23.5% YoY).
• Revenue from cloud services increased 15.6% YoY to JPY2.5bn, while maintenance services revenue decreased 16.0% YoY.
• The company forecasts FY03/26 revenue of JPY17.7bn (+8.9% YoY) and net income of JPY1.9bn (+9.0% YoY).

• Data suggests that share buybacks/share cancellations are expected to have positive effect on ROE/ROA, while companies with low valuations increasingly utilize share buybacks as a measure to raise stock prices.
• Overseas investors share the value that companies should have business plans for growth and return surplus cash after investment to shareholders. There’s gap between investors and companies inn this value.
• More effective approach would be to require management to fulfill accountability by explaining fundamentals of returning unused cash to shareholders and disclosing business plans if they wish to retain cash.

• As short-term rates rise, Japan Post Bank (7182 JP)‘s perceived superior fundamentals may be leading to a short squeeze on the stock versus Japan Post Holdings (6178 JP).
• Preceding my comments on Japan Post – and Silicon Integrated Systems (2363 TT) – 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%.

• A bit over three years ago I re-wrote on Tsi Holdings (3608 JP). Then? EV/Revenue and EV/EBITDA of 0.03x and 0.5x respectively. I pounded the table. 
• My recommended trade: “Buy the stock (preferably from cross-holders interested in selling). Buy with both hands. Buy a lot. Buy more later. Pressure the company to go private.”
• Since then, total return has been +295%. Today they announced another buyback. Tomorrow morning it gets done. Details details details!

• GNI Group (2160 JP) is looking to raise around US$100m from a primary placement (after upsize).
• The deal is a small one, representing 2.4 days of the stock’s three month ADV, despite being 9.0% of total shares outstanding.
• In this note, we will talk about the placement and run the deal through our ECM framework.

• KKR and JIC Capital launched a ¥348B (~$2.3B) MBO for Topcon (7732 JP) at ¥3,300/share, offering an ~88% premium.
• The deal implies ~78x FY25 P/E and ~37x FY26E P/E—pricing in Eye Care’s high-margin growth while Positioning remains a cyclical drag.
• Long term, Eye Care is well-positioned to scale globally as AI diagnostics and SaaS platforms unlock sustained double-digit growth.

• Since this is the final year of the current 5-year MTP, focus growth initiatives for FY26/3 are shifting out with a view toward the next MTP.
• Regarding cash allocation for investments and shareholder returns, in addition to FY26/3 capex plans for IT investment in various key systems, as well as renovation work on the Company’s head office, management announced a new 3-year plan to construct a new mother distribution center in Hyogo Prefecture to cover Western Japan at a total estimated cost of JPY 15bn (internal funds plus bank loans, see P6 for details).
• At the same time, it added DOE > 3.0% in addition to targeting a consolidated payout ratio of ≥ 50% to its policy on shareholder returns.

• Past Performance: KHI has rebounded from FY21 losses to record-high revenues and profits in FY25, driven by aerospace recovery and energy systems strength.
• Future Growth: Orderbook visibility of ~¥3 trillion supports 5–6% annual growth, led by hydrogen, commercial engines, and automation.
• Valuations: At 7.6x EV/EBITDA and 14x PE (NTM), KHI trades at a discount to peers like MHI and Komatsu, reflecting lower ROE and execution risk on long-cycle capex bets.

• Although corporate governance in Japan has gradually improved over the past decade, many listed companies have failed to achieve their management goal of sustainable growth in corporate value.
• TSE seems to believe that the underlying problem is that management does not recognize “capital costs” and is therefore unable to concentrate resources on businesses that can secure sufficient margins.
• I believe that the problem stems from a lack of awareness that free cash flow belongs to shareholders and that companies have a fiduciary duty to shareholders.

• Shift Inc (3697 JP) reported 3QFY08/2025 results last week, with solid top-line and earnings growth. 3Q revenue fell below consensus while OP beat consensus by a huge margin.
• The margin drop in 3Q was only due to seasonality and not due to operational inefficiencies. Shift also raised its full-year OP guidance which seems too conservative.
• The market overreacted to Shift’s 3Q earnings with a 10% drop; however, the share price has begun to move up as there is no reason to panic.

• On Friday after the close, Lifenet Insurance Company (7157 JP) announced that it would move to TSE Prime on 25 July 2025. 
• That means it will go into TOPIX on 29 August 2025 at the close. There is a lot to buy. Under the old Quiddity TOPIX Inclusion matrix, it’s super green.
• It also has a very interesting shareholder structure which is worth looking at in detail.

• Kawasaki Heavy Industries (7012 JP) stock price has moved higher over the last few months, and the increased market cap should result in global index inclusion in August.
• Kawasaki Heavy Industries (7012 JP) has underperformed its larger peers, and the stock is trading cheaper than the average of its peers on most metrics. 
• There will be positioning in the stock that has been built up over the last month and a relative value trade could offer better risk reward here.

• Alimentation Couche-Tard just withdrew their offer to buy Seven&i for $47.2bn, and within two days, Seven’s share price is down 12.5% and ACT’s is up 10.6%.
• Seven’s management deluded itself into thinking it could match ACT’s returns by selling off non-core assets. This is pure financial gimmickry, and the market sees right through it.
• Seven will never see a deal as good as the one ACT offered, and failing to capitalize on should be investigated as a potential crime against common sense.

• ACT’s bid for Seven & I has been withdrawn and Seven will be better off long-term because of it – although we detail here how competitors are catching up fast.
• Once York HD has been split off, the company can at last focus on its crucial local CVS operation: Japan makes up 25% of revenues but almost 50% of profits.
• The potential is real and we are bullish on the long-term value but we would have been more bullish if the former CEO Ryuichi Isaka was still on board.

• Noritake – Despite strong profits from semiconductor ceramics, lack of strategy for underperforming segments and idle assets invites activist pressure for structural reform. 
• Square Enix – New turnaround plan lacks clear KPIs and capital discipline, prompting activists to demand sharper execution and improved shareholder returns. 
• Eiken Chemical – Activists gained board influence through compromise, advancing governance reform and signaling momentum toward a potential buyout.

• Default markets are taking a breather and cleansing weak hands, with global fiscal concerns affecting G10 markets.
• Japan’s upcoming upper house elections could impact fiscal situation and yen value.
• Dollar strength has been driven by mixed US data and policy news, with potential for dollar Bears to get a reprieve.

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only.

• Japan System Techniques (hereafter, the Company) announced its full-year FY2025/3 results: Key consolidated figures included net sales of JPY 29,324 mn (+12.0% YoY), operating profit of JPY 3,188 mn (+14.2% YoY), ordinary profit of JPY 3,264 mn (+14.1% YoY), and profit attributable to owners of parent (hereafter, net profit) of JPY 2,443 mn (+17.1% YoY).
• The Company achieved a record high increase in net sales for the 14th consecutive year and operating profit for the 10th consecutive year, with ROE reaching 17.8%.
• The dividend per share for FY2025/3 was JPY 27.0, an increase of JPY 4.5 compared to JPY 22.5 in FY2024/3, an increase for the 4th consecutive year.

• DWTI announced after the close on July 15 that it has decided to add H-1129, an in-house discovered candidate compound, to its pipeline and develop it as a treatment for corneal and conjunctival diseases caused by immune disorders.
• ‘Corneal and conjunctival diseases’ refers to a general term for conditions characterized by inflammation or damage to the cornea and conjunctiva.
• The cornea is the dome- shaped transparent layer covering the iris, pupil and anterior chamber, which focuses and refracts light onto the retina. 

• Revenue peaked in FY23 but margins have declined due to cost pressures and impairments.
• The company is exiting underperforming assets and expanding in fine carbon, furnaces, and carbon black.
• At ¥1,010, it trades at ~19.6x FY25e P/E, in line with peers but below book at 0.8x P/B.

• Past Performance: Revenues stable; margins improved due to semiconductor growth, despite weak performance in legacy chemicals and graphite electrodes.
• Strategy & Shutdown: Shutting 30% electrode capacity; refocusing on high-margin semiconductor, SiC, and packaging materials with ¥330 bn capex planned by FY25.
• Valuation: Trades at 8x EV/EBITDA and 14x P/E FY25E; re-rating possible with higher margins and semiconductor mix.

• Ono Pharmaceutical (4528 JP) guided Opdivo revenue in FY26 to be ¥138.5B (Japan: ¥125B, up 4% and Overseas: ¥13.5B, up 3%), up 4% YoY.
• Opdivo in combination with Yervoy (from Bristol Myers Squibb) was approved in Europe, US, South Korea, and Japan for the first-line treatment of patients with unresectable or metastatic hepatocellular carcinoma.
• In FY26, Opdivo’s revenue growth will come from indication expansion but smaller addressable patient population remains a concern for long term.

• While very few companies allocate cash appropriately, many companies simply announce small-scale share buybacks, resulting in cash being used in a half-hearted manner for both growth and shareholder returns.
• The problem is that many managers lack awareness of their fiduciary responsibility to make sincere decisions on cash allocation based on the idea that free cash flow belongs to shareholders.
• Even for listed companies, the time has come to discuss the role of managers who are unable to thoroughly fulfill their fiduciary duties to shareholders.

• A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
• ECM developments: NSDL (NSDL IN) is seeking to raise US$400 million
• Event-Driven developments: Seven & I Holdings (3382 JP), Shibaura Electronics (6957 JP), DD Group (3073 JP), Dickson Concepts Intl (113 HK), Abacus Storage King (ASK AU), PointsBet Holdings (PBH AU).

• Alimentation Couche-Tard (ATD CN) walks away from Seven & I Holdings (3382 JP), and accuses 7&i’s Board, management, and the Special Committee of bad faith and bad governance.
• Buy Krungthai Card (KTC TB) with both hands as pledged sharesfall to 3.5% of shares outstanding from 16.3% the previous month.
• If you have borrow on GMO Internet (4784 JP), use it. Otherwise, avoid like the plague. It would not be surprising if the TSE were to ding someone on manipulation. 

• Q1 FY03/26 revenue rose 6.1% YoY to JPY15.4bn; operating profit increased 16.9% YoY to JPY644mn.
• Recurring profit fell 20.5% YoY to JPY614mn; net income attributable to owners dropped 40.4% YoY to JPY399mn.
• Construction demand and rental shifts impacted segment revenues and profits, with mixed YoY results across business areas.

• Online AGMs using Internet account for 18%. More than 90% of these meetings are limited to broadcasting the meeting, without allowing shareholders to exercise their voting rights during the meeting.
• Technical issues are cited as the reason why online shareholder meetings are not increasing, and the Ministry of Justice’s advisory board is discussing legal reforms.
• For companies whose goal is to pass company proposals at AGMs and end quickly, even if the resolution of issues is included in legal revision, it will have little effect.

• The company achieved FY02/25 sales of JPY205.0bn, surpassing the JPY180.0bn target, driven by agile menu pricing.
• Operating profit for FY02/25 reached JPY7.3bn, exceeding the JPY7.0bn target, despite rising raw material and labor costs.
• The company maintained a strong operating margin of 6.3% in FY02/25, supported by cost control and efficiency improvements.

• Alimentation Couche-Tard (ATD CN) which proposed a takeover to Seven & I Holdings (3382 JP) almost a year ago, has walked. They delivered a letter bomb on the way out.
• The letter is titled “ALIMENTATION COUCHE-TARD ANNOUNCES WITHDRAWAL OF PROPOSAL TO ACQUIRE SEVEN & I HOLDINGS DUE TO LACK OF ENGAGEMENT.” This is not the first time they have complained.
• The letter is not aimed at the 7&i Board or at ATD stakeholders. It is meant to drive a wedge between 7&i active shareholders and its management team. We’ll see.

• Today, Mitsui Matsushima (1518 JP) announced the results of its Buyback Tender Offer to repurchase up to 3,999,999 shares (35.8% of shares out ex-Treasury) at ¥5,000/share. 
• Murakami-San owned 42% of the voting rights at announcement, then bought more on the dip just below ¥5,000/share. 
• The Tender Offer Buyback was “successful” in that it bought back 3.3mm shares. But the result was FAR more interesting than I expected. Surprising Results with Surprising Implications

• Couche-Tard has withdrawn its offer for Seven & I Holdings (3382 JP) by unfairly laying the entire blame on the Board.
• The Board has made credible progress, but the jury is still out on whether the Board’s plan will generate returns. Shareholders remain sceptical as the shares have underperformed the index.
• In theory, the sell-off presents a buying opportunity (My SoTP valuation is JPY 2,376). However, the shares are likely to tread water as there are no near-term catalysts. 

• Ryohin Keikaku (7453 JP)‘s stock price has more than doubled this year and the increased market cap could now result in a global index inclusion.
• Ryohin Keikaku (7453 JP) has outperformed its peers by a BIG margin since its inclusion in the Nikkei 225 (NKY INDEX) in September 2024.
• There appears to be significant positioning in the stock. Given the huge outperformance over the last few months, trim into strength.

• Square Enix holds globally recognized IP with monetization upside across platforms, and recent pipeline discipline signals a shift toward higher-margin, high-quality titles that can stabilize earnings and restore growth.
• Activist involvement is intensifying, creating strong pressure for capital returns, governance reform, and strategic clarity – unlocking shareholder value in a business that remains structurally underleveraged and undervalued vs peers.
• With operating margins improving, digital sales accelerating, and cost structures being realigned, Square Enix is positioned to re-rate meaningfully as investor confidence rebuilds and management delivers on core turnaround objectives.

• Hagihara Industries [HI] (7856 JP) reported FY25 (Oct year-end) 1H earnings results on 9 June 2025, producing 1H operating profit [OP] of ¥899mil (-30.8% YoY) on sales of ¥16,400mil (+0.2% YoY) versus 1H OP guidance of ¥1,160mil (-10.7% YoY) on sales of ¥16,780mil (+2.5% YoY).
• Although 1H sales hit a record in semi-annual sales, 1H OP declined -30.8% YoY.
• HI forecasts FY25 RP of ¥2,500mil (+14.2% YoY) vs the RP target of ¥3,300mil.

• In FY03/25, the company reported revenue of JPY38.7bn (+10.3% YoY), operating profit of JPY5.4bn (+14.5% YoY), recurring profit of JPY5.5bn (+7.9% YoY), and net income attributable to owners of the parent of JPY4.6bn (+18.1% YoY).
• Domestic revenue rose 7.5% YoY to JPY16.0bn, while overseas revenue increased 12.4% YoY to JPY22.7bn.
• The overseas revenue growth was driven by sales expansion in China and other Asian markets (excluding forex impact, overseas revenue grew 7.1%).