Japan

• Taiyo Pacific’s Tender Offer for Roland DG Corp (6789 JP) was to end Friday, but it was extended 10 days. 
• Roland DG provided an update regarding the status of the Brother overbid. It did not show as much strategic-mindedness as it might have.
• Shares are now trading at a post-overbid high. Strategic missteps up the risk but Brother can pay more.

• I tally 51 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• Two new deals discussed on Smartkarma this week: Madison Dearborn’s low-balled Offer for APM Human Services (APM AU); and NTT Data Corp (9613 JP)‘s Offer for Jastec (9717 JP).
• Key updates took place on: Boral Ltd (BLD AU), Azure Minerals (AZS AU), Genex Power (GNX AU), JSR Corp (4185 JP), Chilled & Frozen Logistics Holdings (9099 JP), & Lawson (2651 JP).

• 9 weeks ago, the FT reported Elliott Management had a stake in Mitsui Fudosan (8801 JP) and had asked them to sell cross-holdings and do a ¥1trln buyback. Mitsui responds.
• Lawrence Ho is buying Melco(200 HK). While it often pays to follows where the family invests, Melco is trading too tight for what is a simple holding company structure.
• Avoid being long Aozora Bank Ltd (8304 JP) vs the Banks Index, a portfolio of other cheaper banks, etc. Minimal/negligible upside in following Murakami-san here. And Activism on Banks is difficult.

• Since 2020, there has been a divergence between P/B and TOPIX movements, complicating matters for listed companies that have been asked to raise their P/Bs.
• Expectations are high for a rise in ROE, which has a certain correlation with nominal GDP, which is also increasingly correlated with TOPIX, as deflation exits.
• If price pass-through fails, escaping deflation may not lead directly to higher profit margins. If profit margin increase is insufficient, reducing cash on hand is essential to increase ROE.

• Several days ago I published a piece showing the data for TOPIX flows for April month-end.
• This is an update reflecting new data companies have reported to regulators, one large correction to a data provider’s data, and one Very Large Flow.
• I believe that the revised data is more accurate. And there is more flow. With a spreadsheet attached. 

• The Nikkei 225 Index last week bounced back, after a 2-weeks down pullback.
• The index is at a fork in our view: it could go higher from here, but we would like to see a sustained, multi-week rally to be convinced.
• If doubt about this potential rally continuation is strong, target the 40500-40800 price area to place SHORT trades against the index.

• Nitto Kogyo Corporation (Nitto Kogyo) is a leading manufacturer of distribution boards and panel boards for electrical and telecommunications infrastructure, as well as enclosures that house telecommunications and precision equipment.
• The company has 45 sales offices and nine factories in Japan, including the new Seto Plant, which will begin operating in spring, 2024, and is working to expand its business in ASEAN countries, with overseas production and sales bases in China, Thailand, and Singapore.
• In the renewable energy field, the company is focusing on EMS-related businesses such as solar power generation systems, EV recharging stations, and self-contained industrial solar power storage battery systems.

• 9 weeks ago, the FT reported Elliott Management had a stake in Mitsui Fudosan (8801 JP) and had asked them to sell cross-holdings and do a ¥1trln buyback. 
• The stock popped 7% the next day to ¥1302, on the highest volume since the covid crash, hesitated a day, then powered almost 20% higher through the end of March. 
• Today, Mitsui Fudosan responded with an Amendment to their Plan out to 2030. It has a higher dividend, a share buyback, higher EPS target growth, and higher ROE target. But…

• Fast Retail missed analyst estimates for Q2 sales and operating profit. Revenue growth slowed to 5% YoY
• Full year operating profit guidance maintained at Y450 billion, just slightly below the street 
• The stock is trading at 27x EV/EBIT, in-line with historical averages, but still expensive in absolute terms and versus global peers

• Net profit per listed company increased 4.4 times over the 33 years from 1989 to 2023, which means only a modest 4.5% annual growth.
• The reason why ROE has been sluggish since FY 2005 is due to the slow growth of Net Profit Margin, the decline of Asset Turnover, and the flat financial leverage.
• When the escape from deflation becomes a reality, the key is to have products ready to pass on prices, and defense by cash alone is not sufficient for this purpose.

• Just under 6 weeks ago, Japanese activist Murakami-san’s company and daughter reported a 5+% stake in Aozora Bank Ltd (8304 JP). They bought after a sharp dip caused CRE-related writedowns. 
• As is normal, they bought more (now 8.92%) post-5%-filing-trigger, but before the actual first filing. And as is normal these days, the stock popped on the first filing.
• Then it fell, and hasn’t recovered much. So far, on a weighted basis, they are up 1% vs TOPIX Banks Index. 

• The Chilled & Frozen Logistics Holdings (9099 JP) Board has responded with several questions regarding AZ-Com Maruwa Holdings (9090 JP)’s pre-conditional hostile offer of JPY3,000 per share.
• The Board questions the transaction’s schedule, terms and potential synergies. The Board has also used the ruse that due diligence access would justify a higher offer price.
• Expect several rounds of Q&A and a delay to the tender start. If shares continue trading through terms ahead of the tender start, AZ-COM Maruwa will likely have to bump. 

• The Japanese Financial Services Agency has asked the general insurers to reduce/eliminate their cross-shareholdings.
• Sompo Holdings (8630 JP) had a stake over US$100m in at least 16 listed Japanese stocks, amounting to a total of around US$6bn.
• In this note, we take a look at its stakes in various companies to see which ones could possibly be candidates for further selldowns.

• Trial, the discount FMCG and retail technology company, completed its IPO last month, achieving an initial market capitalisation higher than most of its rivals in the supermarket sector. 
• If forecasts for FY2023 are achieved, it will become the 5th largest chain in the country and its proprietary technology should give it an important advantage in the medium term.
• But its position at the centre of the fast-growing discount sector will drive the real growth, and the Kyushu-based firm will emerge as challenger to leading retailers.

• Amvis Holdings Inc (7071 JP) opened 57 facilities during FY20–23, which raised total borrowings 37% YoY to ¥17B in FY23 and further to ¥19B at the end of Q1FY24.
• The impact of the monetary policy is expected to be immaterial based on the current interest incidence of just 0.44%. Interest expenses account for less than 1% of revenue.
• Amvis started FY24 on a solid note, with all key parameters reporting more than 30% YoY growth in Q1FY24. The company has reiterated full-year FY24 guidance.

• Every year in April there is an interesting phenomenon with TOPIX. It is what Janaghan Jeyakumar, CFA calls “The Big April Basket.” The TSE re-assesses Liquidity Factor Coefficients.
• It also does a FFW change, and this year it has Phased Weight Reductions for those slowly leaving TOPIX and PWR re-inclusions for those identified last October as going back.
• Janaghan had 18 “High Conviction” LF removals. All were hits. They are upweights. Then there are 34 changes to FFW coefficients.

• Nominal GDP grew 1.8% from 2012 to 2017, higher than the annual average over the past 33 years, in anticipation of an escape from deflation, but TOPIX gains have stalled.
• Nominal GDP from 2021 to 2023 will grow 3.8% per year, far above the average of the past 33 years, and the correlation with TOPIX is even higher.
• With average P/B showing little correlation with TOPIX after 2020, expanding nominal earnings without losing out to rising prices seems to be a more important factor for stock price appreciation.

• Jade Group has acquired Magaseek and will merge the online mall with its own fashion e-commerce platform, Locondo and hopes to create a growing rival to Zozo.
• Magaseek was founded by Itochu 20 years ago, and the deal underlines Itochu’s growing influence over Jade as a proxy for its ambitions in fashion e-commerce and distribution.
• However, Jade Group has seen little organic growth for its Locondo platform in recent years, and while its acquisitions have added scale, integration has been haphazard.

• 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.

• Today, cram school operator Riso Kyoiku (4714 JP) and 20% owner real estate developer Hulic Co Ltd (3003 JP) amended their Capital and Business Alliance agreement. 
• Hulic will buy 25.5% of shares out in a Partial Offer at +43.5% vs last. Then post-tender, they will buy shares at last from the company to go to 51.%
• The founder will sell his 10%. The rest is interesting. It’s a high ROE high div stock. Some own it from higher. Pro-ration is tough to estimate. But we try.

• Riso Kyoiku (4714 JP) announced a partial tender offer and third-party allotment with Hulic Co Ltd (3003 JP), the largest shareholder. Hulic aims to make Riso Kyoiku a consolidated subsidiary.  
• The offer is for a maximum of 39.4 million shares (23.15% post-allotment ownership ratio) at JPY320 per share, a 46.8% premium to the undisturbed price (5 April).
• Irrevocable (from the founder and Chairman) represents a 9.26% post-allotment ownership ratio. The offer is light, but there is no minimum acceptance condition. 

• The March 2024 rebal is done and dusted. When announced, there were 2 prospective DELETEs for Sep 2024. Now there is only one expected DELETE, Nippon Paper Industries (3863 JP). 
• The one likely inclusion is therefore Ryohin Keikaku (7453 JP). But there is more fun afoot with Fast Retailing (9983 JP) and Tokyo Electron (8035 JP). 
• The two stocks – of totally different sectors – interact somewhat, both in determining Nikkei 225 direction, and their relative potential selldowns. 

• NTT Data Corp (9613 JP) on Friday announced a Tender Offer to take over small custom software developer and system integrator Jastec Co Ltd (9717 JP). 
• It’s at a premium. But for a growing company ahead of “The 2025 Problem” where synergies are expected, you’d want to get a premium vs where comps trade. You don’t.
• But this gets to near 50% just from friendlies. Someone who wanted to interfere would have to be publicly noisy. I expect this gets done.

• We 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: Jastec Co Ltd (9717 JP), Qantm Intellectual Property (QIP AU), Southern Cross Media (SXL AU), Genex Power Ltd (GNX AU), QV Equities Ltd (QVE AU), China TCM.  
• Lowest spreads: Roland DG Corp (6789 JP), Tietto Minerals Ltd (TIE AU), Newmark Property REIT (NPR AU), Mma Offshore (MRM AU), CPMC Holdings (906 HK), Pact Group Holdings (PGH AU). 

• AAOI recommends investing in Nintendo ahead of the launch of the Switch 2 console cycle in mid to late 2024
• Analyst sees potential for multiple expansion, margin improvement, and continued monetization of intellectual property through theme parks and movies
• Bullish on Nintendo’s stock in absolute terms and relative to other companies in the video game and media sectors, predicting significant gains based on past launch cycles.

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

• ETF sale is pie in the sky if the dividend income from ETFs held by BOJ is used to cover the interest payments associated with lifting of negative interest rates.
• ETFs held by the Bank of Japan, which account for 7% of prime market capitalization, are actually reducing the number of actual tradable shares and hindering trading liquidity.
• Furthermore, ETFs held by BOJ, which don’t indicate their intention to be shareholders, may be voting in favor of the company’s proposal as new silent shareholders in place of cross-shareholdings.

• 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: Kokusai Electric (6525 JP) lock-up expiry and HD Hyundai Marine Solution (443060 KS), Bharti Hexacom (6597372Z IN) IPOs.
• Event-Driven developments: Langham Hospitality Inv Ss (1270 HK), IntelliCentrics Global Holding (6819 HK) Jastec Co Ltd (9717 JP), JSR Corp (4185 JP), Best World International (BEST SP), Isetan Singapore (ISET SP).     

• I tally 52 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• Four new deals discussed on Smartkarma: Austal  (ASB AU)‘s spurned Offer; Best World (BEST SP)‘s Exit Offer; Isetan Singapore (ISET SP)‘s parent Offer; and (maybe) Langham Hospitality (1270 HK)‘s privatisation. 
• Key updates took place on: Azure Minerals (AZS AU), Genex Power Ltd (GNX AU), IntelliCentrics Global Holding (6819 HK) and JSR Corp (4185 JP).

• The outlook for factory automation is improving with inventory clearance, the upturn in the semiconductor industry and an AI-enhanced response to the labor shortage.
• Yaskawa’s margins should continue to rise with renewed growth in Robotics, efficiency gains and an upgraded product line. 
• Valuation stretched at 30x EPS guidance for FY Feb-25, but current weakness looks like a long term buying opportunity.

• Murakami to tender stake in JSR Corp (4185 JP)? Maybe the “double arb”: i.e. short on swap, long on cash, will tender the cash, remain short the back end.
• Austal Ltd (ASB AU) rejected (for now) Hanwha Ocean (042660 KS)‘s bid based on regulatory concerns.  Hanwha reckons these should not be an issue.
• If you can tolerate owning the mobile biz, buy Rakuten (4755 JP) on dips. If not, avoid Rakuten Group and Rakuten Bank short-term; buy Rakuten Bank on larger dips.

• Jastec Co Ltd (9717 JP) has recommended a tender offer from NTT Data Corp (9613 JP) at JPY1,940 per share, a 37.6% premium to the undisturbed price (5 April). 
• 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 66.67% ownership ratio.
• Based on the irrevocables, the minimum acceptance condition requires a 56.4% minority acceptance rate. The acceptance condition is achievable as the offer represents a 22-year high.

• While more companies should include the cost of capital in their disclosures, investors are demanding that management present specific solutions discussed by the board of directors to solve their company’s problems.
• Many companies with high foreign shareholding disclose their own management strategies, while companies without high foreign shareholding tend to lack the ability to think of measures to increase profitability.
• The TSE’s newly established department supports such companies to ensure that all listed companies are not left behind, but that seems to go against the quality of the market.

• 10+ Months ago, Suruga Bank Ltd (8358 JP) announced it would sell a large chunk of its treasury shares to Credit Saison and would then buy back ¥22bn of stock.
• I liked the odds in Suruga Bank (8358) To Sell, Then Buy Back 17% of the Bank, but HOW Is Key. They spent the ¥22bn. The stock rose a lot.
• Today, we get a div hike for H2 (implying a div hike for this year too), another buyback, a huge share cancellation, and new KPIs. As always, details matter.

• Nidec faces challenges amid global EV sales decline, with shares and valuations reflecting market pessimism.
• Anticipated catalysts include forthcoming guidance, potential MTP reassessment, and a strategic acquisition opportunity.
• At 18x EBIT, Nidec looks a compelling play on secular themes of electrification, automation, and energy efficiency.

• Major milestones with high expectations coming in the next 2-3 years: 1) Phase IIb US trials for H-1337 as “first choice as a second-line Glaucoma drug” for patients who do not respond to PGs
• 2) 2024 application/approval and 2025 launch of DW- 1002 in Japan, 2023 application and 2024 approval/launch in China, as well as orphan drug designation for combination formula MembraneBlue-DualⓇ (DW-1002 + trypan blue) in the US,
• 3) in Japan, start P2 clinical trials in 2024, P3 trials in late 2025 though 2026, and normal schedule application for approval for regenerative cell-therapy DWR-2206 in 2027