Japan

• The Nikkei 225 INDEX has been rallying for >3 months, rising more than 28%. Is it too much, too fast?
• Short-Term, if we look at the Market Reversal Matrix’s SHORT WEEKLY model for the index, it looks like it could either reverse within a couple of weeks, or stall.
• Look for the ~41000 resistance area to place SHORT or hedge your LONG positions.

• 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.
• Two new deals were discussed this week on Smartkarma: IntelliCentrics Global Holding (6819 HK) disposal/winding-up/special dividend arb; and Chilled & Frozen Logistics Holdings (9099 JP)‘s hostile Offer.
• Key updates took place on: Boral Ltd (BLD AU), Orecorp Ltd (ORR AU), Link Administration (LNK AU), and JSR Corp (4185 JP).

• 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: Lianlian DigiTech (2104619D CH) launches a US$78 million IPO.
• Event-Driven developments: Chilled & Frozen Logistics Holdings (9099 JP), JSR Corp (4185 JP), Shinko Electric Industries (6967 JP), IntelliCentrics Global Holding (6819 HK), Sciclone Pharmaceuticals (6600 HK). 

• The trade of being short Fast Retailing (9983 JP) vs Nikkei 225 or Sector Basket is fundamentally slightly short Nikkei 225 froth.
• Giordano (709 HK)‘s SGM will likely pivot off how the shareholders under Halcyon Securities vote. Digging a little deeper as to who these shareholders are, provides some (not-altogether) surprising results.
• AZ-Com Maruwa Holdings (9090 JP) intends to launch a Tender Offer on Chilled & Frozen Logistics Holdings (9099 JP) without having contacted C&F first. A HOSTILE deal. Yum!

• Companies with the highest Disclosure in English scores have the highest ROE, Tobin’s Q, Market Capitalization, and Foreign Shareholder Ratio, while companies with the lowest scores have the lowest values.
• Companies with the highest Disclosure in English scores also show generally higher Board Practices and Key Actions. Both Disclosure in English and these practices are the result of engagement efforts.
• If Disclosure in English and corporate governance efforts are advanced through engagement, it can be hypothesized that profitability will also increase through engagement with overseas investors.

• JAL finishing FY24 strongly with another guidance upgrade – upgraded FY26 targets more logical in light of existing ANA targets
• ​Demand momentum particularly helpful as wages rise across Japan and ​cost control to remain impressive over FY25-FY26 as LCC growth set to dilute FSC inflation
• ​Detailed analysis of JAL’s widening margin gap to ANA suggests revenue solution required – momentum helpful and needs to be watched carefully

• Chilled & Frozen Logistics Holdings (9099 JP) last week announced its “Action to Implement Management That is Conscious of Cost of Capital and Stock Price”.
• Today it announced AZ-Com Maruwa Holdings (9090 JP) had announced its intention to launch a Tender Offer on C&F Logistics without having contacted C&F first. A HOSTILE deal. Yum.
• The deal is proposed at a 50% premium, with the goal of getting to a minimum of 50.00%. This will be interesting.

• AZ-Com Maruwa Holdings (9090 JP) has launched a pre-conditional hostile offer for Chilled & Frozen Logistics Holdings (9099 JP) at JPY3,000 per share, a 47.0% premium to the last close.
• The pre-conditions primarily relate to regulatory approvals. The tender is expected to start in early May. The Board responded that it will evaluate the offer.
• The hostile offer was a reaction to the Board’s lack of engagement. The Board will struggle to reject an attractive offer, which is 37.5% higher than the all-time high. 

• Driving strategic revitalization – Nippon Shokubai is a global chemical company with competitive proprietary technology, a track record of sustained free cash flow generation, and a balance sheet with room for optimization.
• It has embarked on a business transformation, strategically focused on expanding its Solutions business with higher- margin performance chemicals and identifying energy, electronics, and life science sectors as growth markets.
• Organizational changes being conducted aim to enhance human resource development and conduct quicker decision-making. 

• Sourcenext Corp (4344 JP) plans, develops, and sells PC software, smartphone apps, and IoT products.
• In POCKETALK®, besides the existing device business, the company will focus on sales of software products, including Simultaneous Interpreter for the POCKETALK® for BUSINESS series for corporate customers.
• The revision is mainly due to the extended lead time from inquiry to full-scale orders for the POCKETALK for BUSINESS Simultaneous Interpretation web browser version.

• Sun* (4053 JP) provides consulting, software development, recruiting, and other services to companies that seek to create value or businesses, including startups.
• In FY12/23, revenue was JPY12.5bn (+16.5% YoY), operating profit JPY1.8bn (+96.8% YoY), recurring profit JPY2.3bn (+99.1% YoY), and net income attributable to owners of the parent JPY1.6bn (+90.4% YoY).
• Sun* does not disclose a medium-term business plan with quantitative targets, but it releases qualitative targets related to KPI growth.

• Azbil Corp (6845 JP) provides automation services for buildings, factories, and plants and also offers subsistence-related automation services in the lifestyle area.
• In FY03/23, sales were JPY278.4bn (+8.5% YoY), operating profit was JPY31.3bn (+10.7% YoY), recurring profit was JPY32.1bn (+8.9% YoY), and net income attributable to owners of the parent was JPY22.6bn.
• Azbil in May 2021 announced a new medium-term management plan to cover the four fiscal years from FY03/22 to FY03/25 and new long-term targets for FY03/31.

• As a comprehensive water treatment engineering company, Organo Corp (6368 JP) engages in the planning, design, procurement, construction, operational management, and maintenance of water treatment plants.
• In FY03/23, orders received were JPY173.5bn, revenue was JPY132.4bn, operating profit was JPY15.2bn, recurring profit was JPY16.0bn, and net income attributable to owners of the parent was JPY11.7bn.
• Organo Corporation announced revisions to its full-year forecast for FY03/24.

• LaKeel (4074 JP) is a software development company that uses a new system development method called microservices.
• In FY12/23, revenue was JPY7.7bn (+11.2% YoY), operating profit JPY775mn (+0.3% YoY), recurring profit JPY807mn (+10.3% YoY), and net income attributable to owners of the parent JPY540mn.
• The company has not announced a medium-term business plan, but has medium-term targets of JPY10.0bn in revenue and an OPM of 15% to be achieved.

• Hochiki Corp (6745 JP) is a major manufacturer of fire alarm and fire extinguishing systems.
• In FY03/23, the company posted revenue of JPY85.5bn, operating profit of JPY5.6bn, recurring profit of JPY5.9bn, and net income attributable to owners of the parent of JPY4.4bn.
• Hochiki Corporation announced an upward revision of its full-year FY03/24 earnings forecast.

• In the past, value traps were macro environment that couldn’t generate profits in deflationary economy, and micro problem of managers who didn’t listen to constructive management improvement proposals from investors.
• The introduction of Stewardship Code and Corporate Governance Code, and TSE’s request for change in awareness of companies, has reduced the risk of activist investors’ investment strategies flailing around in vain.
• Management awareness has just begun to change, and few companies generate intrinsic value, as evidenced by the fact that ROE hasn’t begun to improve. Activist investors will continue taking interest.

• Every year it’s the same trade. This year it is Wednesday and Thursday. There are risks to the analysis – notably allocation.
• But there may be ¥1.0-1.2trln+ to buy on one day into the close later this month, then ad hoc buys of ¥630bn and index sells of ~¥600bn  2 days later.
• Over the past ten years, the two day return on the March trade is great. This year the Nikkei funding trade makes things more complicated. 

• Trial Holdings (5882 JP) priced its IPO at JPY1,700 per share to raise gross proceeds of US$256 million. The shares will start trading on 21 March.
• We previously discussed the IPO in Trial Holdings IPO: The Investment Case and Trial Holdings IPO: Valuation Thoughts. 
• The peers have modestly re-rated since the prospectus was released on February 19. The IPO price remains attractive. 

• CEO Jensen Huang’s keynote address at Nvidia’s GTC event on March 18 was a reminder that generative AI is about building secure and reliable systems, not chatting up the future.
• NEC has spent three years developing its own AI supercomputer, creating the best performing Japanese-language large language model (LLM), and testing new AI products in-house before delivering them to clients.
• The introduction of generative AI and LLMs into business- and industry-specific solutions should provide meaningful additions to NEC’s telecom services, social infrastructure, aerospace and national security related businesses. 

• Discount cash and carry wholesaler/franchisor, Kobe Bussan, posted more record results for FY2023, a reflection of the demand for discount retailing.
• Net profits were down due to foreign exchange costs, but the company continues to expand to meet the growing demand for discount retailing,
• Kobe is also now building domestic factories to counter exchange rate fluctuations, and a new restaurant and food services arm with big potential to grow its wholesale business.

• Shinko Electric Industries (6967 JP) pre-conditional tender offer from the JIC alliance is JPY5,920 per share. The gross spread has narrowed from a high of 10.4% to the current 4.2%. 
• The narrowing spread can be attributed to the JSR Corp (4185 JP) tender launch, which suggests likely China SAMR approval, and Ibiden Co Ltd (4062 JP) giving up recent gains. 
• Like JSR, we expect China SAMR to allow JIC to withdraw its Shinko merger control filing. There is a good chance the tender launches before the guided late August start.

• The share price of Sakura Internet has risen by over 500%, adding Y230 billion in market cap, since investors began pricing in the AI opportunity
• We use pricing data from Amazon AWS to model the revenue opportunity for Sakura’s GPU AI-cloud
• We estimate that 2,500 H100 GPUs could yield an equity value of Y49 billion, far less than the value the market has ascribed

• Snow Peak agreement with Bain Capital to take the outdoor brand private next month seems to have been in the works for a couple of years. 
• Although sales are expected to rebound this year to near record highs, Snow Peak insists the domestic camping boom is over and will look at long-term growth overseas instead.
• Even so, the MBO price looks cheap. Snow Peak is likely to see a rebound in domestic sales in FY2024 and its plans for overseas expansion are solid.

• LIFULL reported an 8% increase in net sales to ¥8.1 bn, driven by overseas acquisitions made during the second quarter of the previous FY.
• OP from comparable operations remained steady at around ¥0.15bn. In the previous year, the company recorded an operating profit of ¥0.8bn, but this included ¥0.66bn in profits from the sale of Rakuten LIFULL STAY, a hotel and lodging platform operator, in October of 2022.
• In the current term, the company recorded a net loss of ¥0.05bn, but this included about ¥0.2bn in one-off costs for the transition to a new management structure in the overseas business. 

• Trial Holdings (5882 JP) (TH) raised around US$259m after pricing its IPO at the top-end in its Japan IPO.
• 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 talk about the trading dynamics.

• TOPIX-Type passive funds have the challenges of buying stocks that aren’t of high quality and of not providing sufficient engagement. JPX Prime 150 is expected to resolve these issues.
• Some believe that JPX Prime 150, a market capitalization-weighted index, shows little difference in performance from TOPIX. However, more careful engagement will contribute to value creation in the long run.
• The continued creation of passive funds linked to the JPX Prime 150 Index is expected to further highlight high quality companies.

• The Tender Offer is finally here. JIC announced the official launch after the close today.
• JIC appears to be taking on the SUNY RF risk as-is. The Tender Offer details vs the original expectations in the late June 2023 document are unchanged. 
• Once started, unless a US court approves an injunction causing regulatory delay, this is done. But there are path events. And of course there is a double arb here.

• JSR Corp (4185 JP) notes that the pre-condition for JIC’s tender has been satisfied. The offer price remains unchanged at JPY4,350 per share. 
• The offer remains attractive despite the material re-rating of peers. The tender should succeed when combined with shareholder fatigue and a lack of vocal opposition. 
• The tender requires a 66.7% minority acceptance rate. The gross and annualised spread for a 23 April payment is 0.6% and 7.1%, respectively.

• The Japanese Financial Services Agency has asked the general insurers to reduce/eliminate their cross-shareholdings.
• Tokio Marine Holdings (8766 JP) had a stake over US$100m in at least 33 listed Japanese stocks, amounting to a total of US$16.5bn.
• In this note, we take a look at its stakes in various companies to see which ones could possibly be candidates for further selldowns.

• 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

• Fast Retailing (9983 JP) is the largest weight in the Nikkei 225. On Friday, it closed at 11.36% of the Nikkei 225, putting it well above the 10% cap level.
• If the stock is above 10% on a pro-forma basis on the base date of 31 July 2024, it will get a capping coefficient. 2.8mm shares (US$2.5bn) to sell.
• At Friday’s close, we were borderline above a double-downweight trigger. At Monday’s open, just below. 30mins later? Back well above. Lots of interesting issues and nuances here for a short.

• 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: APM Human Services Internation (APM AU), Qantm Intellectual Property (QIP AU), Genex Power Ltd (GNX AU), Probiotec Ltd (PBP AU), Alumina Ltd (AWC AU), Silver Lake.
• Lowest spreads: Roland DG Corp (6789 JP), Tietto Minerals Ltd (TIE AU), CPMC Holdings (906 HK), Pact Group Holdings (PGH AU), Vinda International (3331 HK), Snow Peak Inc (7816 JP). 

• Late last week, machine tool and press maker Aida Engineering (6118 JP) made an announcement of a share buyback. Up to 2.3mm shs (3.59%) spending up to ¥2bn.
• The company has filed a policy for “Action to Implement Management That is Conscious of Cost of Capital and Stock Price” in its most recent CorpGov report available (J/E) here. 
• It will be a little smaller than that, but it is worth taking a closer look at the details, etc.

• Most companies with large market capitalization (i.e., those with a high ratio of foreign shareholders) already disclose their financial statements, timely disclosure materials, and convocation notices in English.
• Disclosure in English of corporate governance reports and annual securities reports, which have lagged behind, is gradually increasing among companies with large market capitalization.
• Similar to the results of the recent disclosure regarding the ”TSE’s request”, there is also a difference in the disclosure stance between companies with large market capitalization and other companies.

• The P/E ratio has risen above 20x this fiscal year from no more than 13x in the previous four years, reflecting successful restructuring and investor enthusiasm for AI. 
• Profit margins are rising, but remain moderate in absolute terms with room for further improvement. The shares may consolidate, but they do not look overvalued.
• Management is aiming for generative AI sales of ¥50 billion in three years time. This is less than 2% of total sales, but a positive indicator for NEC’s software business.

• In mid-January, the TSE announced a “name-and-shame” list where they listed all the companies which had put forth a disclosure about 【資本コストや株価を意識した経営の実現に向けた対応】. But they did not actually shame.
• The list shows which companies have disclosed a policy/consideration. But no data/links. We have the links. On Feb 1, the TSE put out a presentation and set of case studies.
• We created a tool to name everyone, show their reports, provide links, and now a new tool. Put in a name, see the difference between the Old/New Reports.

• I tally 50 – 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 were discussed this week on Smartkarma: WAM Leaders (WLE AU) scrip-deal for QV Equities (QVE AU); and TASK Group (TSK AU)‘s Scheme with PAR Technology (PAR US). 
• Key updates took place on: Qantm Intellectual Property (QIP AU), Superloop (SLC AU), CIMC Vehicle (1839 HK), JSR Corp (4185 JP), Roland DG Corp (6789 JP), and Outsourcing (2427 JP).

• 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: Trial Holdings (5882 JP) and Lianlian DigiTech (2104619D CH) IPOs.
• Event-Driven developments: JSR Corp (4185 JP), Roland DG Corp (6789 JP), Yaizu Suisankagaku Industry (2812 JP), Alumina Ltd (AWC AU), QV Equities Ltd (QVE AU), CIMC Vehicles.

• Cyber Security Cloud Inc (4493 JP) provides customers with subscription services based on software it develops in-house.
• In FY12/23, CSC reported revenue of JPY3.1bn, operating profit of JPY550mn, recurring profit of JPY560mn, and net income attributable to owners of the parent of JPY427mn.
• Cyber Security Cloud, Inc. announced the acquisition of its own shares

• Toyota Motor Corporation continues to deliver robust financial performance despite a myriad of challenges.
• In the fiscal year 2024 second-quarter results, the Japanese automotive giant reported an operating income of JPY 2,559.2 billion.
• This was a significant increase compared to the same period of the previous fiscal year.

• Established in 1950, Nihon Denkei (9908 JP) is an independent specialized trading company with a leading domestic share, by sales, in electronic measuring instruments (source: Nihon Denkei).
• In FY03/23, sales were JPY104.8bn (+14.1% YoY), operating profit was JPY3.7bn (+40.4% YoY), and recurring profit was JPY4.0bn (+31.9% YoY).
• On June 24, 2020, the company announced the key elements of its medium-term plan, INNOVATION 2030.

• WILL GROUP announced cumulative 3Q FY24/3 consolidated financial results on February 7, and held a results briefing on February 19 hosted by President Yuichi Sumi.
• This reports examines the details and progress of 3Q results relative to initial plan.
• Then on February 22, WILL GROUP announced that it has decided to sell all shares in specified subsidiary for Startups, Inc. (7089 TSE Growth, specialized in HR services for venture growth businesses and startup companies), in which it holds the majority stake of 54.1% (1,925,400 shares) as of September 30, 2023.

• Corporate Governance Code requires disclosure based on TCFD, and an ISSB-based disclosure system will be discussed in Japan. While interest in disclosing climate change-related information is growing, disclosure hasn’t progressed.
• In the TSE survey, only one-tenth of the companies that listed Scope 1, 2, and 3 emissions in their integrated reports disclosed them in their annual reports.
• If a company can’t disclose Scope 1/Scope 2 in its annual securities report, there’s concern that the company may have challenges in data collection and risk delaying management decisions.

• Outsourcing Inc (2427 JP) has been an “interesting” risk arb situation. It was launched as a Cheeky, Opportunistic, Low-Priced MBO. Some bumps after launch turned out to be BAU.
• The stock has not traded above terms since early on in the trade. I expect people are happy to get out. But there is ANOTHER ARB to do here.
• The OTHER ARB is something quite particular to high float, low activism risk arb trades. In some ways better than the traditional arb, but it has some risks.

• Just out this AM, an article in Bloomberg (J) says “people familiar with the matter” suggest the Tender Offer could be launched as early as 19 March. 
• The language regarding the nature of the China regulatory “approval” is different than recent media articles, but they are in the same vein. 
• Original and updated data, information, grids, etc are shown below. 

• Bloomberg reports that JIC will start the JSR Corp (4185 JP) tender as early as 19 March. Separately, SUNY RF filed a response to Inpria/JSR’s 6 March filing last night.
• My reading of JSR and SUNY RF’s filings suggests that the Court is unlikely to conclude that SUNY RF’s lawsuit will be harmed if JIC proceeds with the tender offer.
• JIC seems comfortable taking on the litigation risk (if required). The key risk remains timing. For a late April payment, gross/annualised spread is 0.6%/4.0%.   

• A&D Holon Holdings is a Japanese precision instrument company specializing in industrial measuring, medical equipment, and semiconductor production
• The company’s semiconductor division is driving high growth and profitability, with expected earnings growth of around 50% over the next two years
• Despite strong prospects, A&D Holon Holdings is significantly undervalued, trading at low multiples on FY Mar-2024 estimates

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.

• Beenos Inc (3328 JP) operates cross-border e-commerce websites that allow mainly individual users to buy and sell goods both in Japan and internationally over the Internet.
• In FY09/23, BEENOS reported full-year consolidated revenue of JPY32.5bn, operating profit of JPY4.5bn, recurring profit of JPY4.1bn, and a net income attributable to owners of the parent of JPY2.2bn.
• BEENOS Inc. has announced changes in its consolidated subsidiaries (share transfer).

• In the previous 4Q follow-up report, we examined “Copilot NAVI,” a service released by JBS in November, which includes videos and summary materials as a guide for enterprise users, for Microsoft 365 Copilot, the AI tool embedded in Microsoft 365 applications, to bring efficient answers to users’ instructions and questions through a chat interface (which can be a daunting challenge).
• JBS followed up in December with interactive workshops to experience Microsoft 365 Copilot before deployment.

•  In this report, we examine JBS enterprise cloud security initiatives, which are a top priority for cloud IT systems managers.

• Pca Corp (9629 JP) develops and sells corporate accounting software and other business systems for small and medium-sized companies.
• Full-Year FY03/23 revenue was JPY13.0bn (-3.0% YoY) due to lower replacement demand for the PCA X series of products, support for which ended in December 2021.
• PCA Corporation has announced changes to its dividend policy and revisions to its dividend forecast.

• World Holdings (2429 JP), established in 1993, primarily provides technical staffing and subcontracting services.
• In FY12/23, revenue was JPY213.7bn, operating profit was JPY10.4bn, recurring profit was JPY10.3bn, and net income attributable to owners of the parent was JPY6.2bn.
• The company’s forecast for FY12/24 calls for revenue of JPY252.1bn, operating profit of JPY9.0bn, recurring profit of JPY8.6bn, and net income attributable to owners of the parent of JPY4.7bn.

• Mitsubishi Kakoki Kaisha (6331 JP) provides engineering (design, procurement, and construction) services for the buildings of industrial, city gas, and sewage treatment plants.
• In FY03/23, the company booked orders of JPY53.2bn, revenue of JPY44.6bn, operating profit of JPY2.5bn, OPM of 5.7%, and net income attributable to owners of the parent of JPY3.0bn.
• Mitsubishi Kakoki Kaisha, Ltd. announced a revision to its full-year FY03/24 earnings forecast.

• AS ONE Corporation (7476 JP) is a specialist trading company that uses a business model focused on catalog sales.
• In FY03/23, sales were JPY91.4bn (+5.1% YoY), operating profit was JPY11.4bn (+22.0% YoY), recurring profit was JPY11.6bn (+21.6% YoY), and net income was JPY8.1bn (+12.6%YoY).
• AS ONE Corporation announced the acquisition of treasury shares via after-hours trading (ToSTNeT-3) and retirement of the treasury shares.