Japan

• Today after the close, Advantage Partners announced the intention to launch a TOB to take over Furukawa Battery (6937 JP) at ¥1,400 – a 26% premium to last.  
• This will require substantial time to obtain regulatory and foreign investment clearances so it is anticipated the Tender Offer will be launched at end-March 2025. I expect that is conservative.
• The price paid to minorities is a premium. But the price paid by the buyer is actually a takeunder. And it gets worse from there. 

• With FY23 earnings in May, Toyota Motor (7203 JP) announced a ¥1trn buyback (410mm shares, 3.04%). Given shares were ¥3,599 the day before, it meant fewer shares or a Tender.
• Like Honda (who hadn’t bought pre-offering), Toyota hadn’t bought back in the first couple of months. We knew there was bank and insurer overhang. That overhang lasts for years. 
• Today, Toyota announced an “organised” 410mm share ¥1trln Tender Offer Buyback. Several financial institutions have announced plans to tender. This provides guidance on supply/demand for the rest of the year.

• Furukawa Battery (6937 JP) recommended a pre-conditional tender offer from Advantage Partners, Tokyo Century Corp (8439 JP) and Furukawa Electric (5801 JP) consortium at JPY1,400, 22.6% premium to the undisturbed price.
• The precondition is approval under the competition laws of Japan and Thailand. The offer is long-dated and anticipated to commence in March 2025.
• While not a knockout bid, the required minority acceptance rate is not onerous. A long-dated offer presents a free option on a bump due to earnings upside or a counteroffer.

• True Wind has increased its partial offer for Sun Corp (6736 JP) by 8.0% to JPY4,750 and lowered the minimum number of shares to be purchased from 3.8 to 3.3m.
• True Wind’s offer has inadvertently spotlighted the valuation disparity vs the Cellebrite DI (CLBT US) stake, resulting in the shares trading through terms.
• True Wind’s revised offer will struggle to succeed as the 8% price uplift is materially lower than the 19% value increase in the Cellebrite stake (since the offer announcement).

• Nidec reported Q1 OP of ¥60b, above the consensus of ¥53b. However this also included a gain from the consolidation of Nidec PSA
• The key earnings driver was small precision motors, which are benefiting from recovery in HDD market and new earnings from cooling systems from AI Servers
• We revise up our full year forecasts but do not believe the share price will react strongly to the “beat.” Maintain bullish view on valuations

• Few companies file their annual securities reports prior to AGM, and since they are filed 1-2 days prior to AGM, there’s insufficient time for a thorough review of useful information.
• Profitable companies that gain the support of overseas investors further increase their return on capital through engagement, and the gap between them and those that don’t will continue to widen.
• Since reducing policy shareholdings will reduce the percentage of voting rights that unconditionally favor company proposals, engagement will be more effective and speed up the process of management improvement.

• Since the US$1.4 billion secondary placement announcement, ASICS Corp (7936 JP)’s shares are up 0.9% from the undisturbed price of JPY2,564 per share (12 July).
• Looking at recent large Japanese placements is instructive to understand the potential trading pattern. So far, Asics’ shares have deviated from the pattern of previous large placements.
• The offering will likely be priced on 23 July. Investors who have participated in previous large Japanese placements tend to secure positive returns.

• Kirin Holdings (2503 JP)’s JPY8,620 offer for Fancl Corp (4921 JP) closes on 29 July. The shares have traded above terms for 25 out of the 26 trading days.
• MY.Alpha Management has amassed 10.3 million shares (8.51% ownership ratio) with several purchases above terms. MY.Alpha could catalyse other shareholders to rally against a light offer. 
• The emergence of MY.Alpha, the high volume above terms, peers re-rating, the required minority acceptance rate, and an offer unattractive to historical trading ranges increase the probability of a bump. 

• Nippon Yusen Kk (9101 JP) today announced an upward revision of H1 and full-year guidance. It was a dramatic increase.
• The breakdown of the OP and RP numbers suggests a huge gain in containers in Q1 and into Q2. The breakdown of revenue and OP changes suggested substantial H2 conservatism.
• On a capital-adjusted basis, Nippon Yusen is now slightly cheap vs its domestic peers and has shown a willingness to spend its excess cash on buybacks. Expect more.

• Today, the final day of the Tender Offer that True Wind Capital launched on 10 June 2024 to buy 19% of Sun Corp (6736 JP), TWC raised its price to ¥4,750/share./
• They also lowered their minimum from 3.7934mm shares (17.0%) to 3.3472mm shares (15.0%).
• As Cellebrite DI (CLBT US) had traded higher, SunCorp had too, and even though shares fell today, they are at ¥4,785/share.

• Temairazu is a high-quality vertical SaaS company in Japan with impressive EBIT growth rates, presenting as an undervalued investment opportunity
• Japan’s software sector is flourishing with a higher number of listed companies compared to Western markets, offering fertile ground for small-cap opportunities like Temairazu
• With upcoming improvements in shareholder returns and a competitive landscape in sectors like accounting software, Temairazu has the potential to be a Japanese hidden gem for prospective investors

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.

• Kokusai Electric (6525 JP) could price their secondary offering after market close today. The stock is down 10.5% since the rumors of the placement began 7 trading sessions ago.
• The Philadelphia Stock Exchange Semiconductor Index (SOX INDEX) has been dropping over the last few days and is 8.6% lower over the last 8 trading days.
• Kokusai Electric (6525 JP) has been trading higher on expectations of index inclusion in August, but that could move to November now.

• ENEOS Holdings (5020 JP) announced its deal for affiliate Tatsuta Electric Wire & Cable (5809 JP) 18-plus months ago. China approvals held it up more than a year.
• Last month, they launched. The sector was up a lot. TOPIX was up a lot. The stock had recently been trading through terms. But ENEOS didn’t bump the price.
• A month later, and the tender was supposed to have closed Friday 19 July. It didn’t. ENEOS extended, for no reason, which suggests they don’t have the shares. 

• A group of shareholders aims to raise around US$1.3bn via selling around 11% of ASICS Corp (7936 JP).
• In our earlier note, we talked about the placement and ran the deal through our ECM framework.
• In this note, we talk about the updates and share price performance since then.

• Aequitas Research’s weekly update on the IPOs, placements, lockup expiry and other ECM linked events that were covered by the team over the past week.
• On the IPO front, the coming week  to see two more listing, with both likely to do well.
• On the placement front, Japan continued to dominate the ECM flows, with India, Taiwan and Australia joining in.

• The fact that institutional investors consider whether a company has zero female board members when voting has led to decrease in the number of companies with zero female board members.
• Since fewer companies have zero female board members but a minority of companies have at least two female board members, achieving 30% female board members seems somewhat of a hurdle.
• While tenure and concurrent service of female board members are problematic, the starting point is to ensure that women have  a 30% voice on the board and to promote diversity.

• I tally 49 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• Three new deals discussed this week on Smartkarma: Samson Holding (531 HK)‘s Scheme, and VTOs for Advanced Info Service (ADVANC TB) and Thaicom Pcl (THCOM TB).
• Key updates took place on Capitol Health (CAJ AU), Alumina (AWC AU), Ansarada (AND AU), TCM (570 HK), CPMC  (906 HK), Fancl (4921 JP),and Hollysys Automation Technologies (HOLI US).

• Since the US$2.0 billion secondary placement announcement, Kokusai Electric (6525 JP)’s shares are down 5.6% from the undisturbed price of JPY5,520 per share (8 July).
• Looking at recent large Japanese placements is instructive to understand the potential trading pattern. So far, Kokusai’s shares have followed the pattern of previous large placements.
• The offering will likely be priced on 22 July. Investors who have participated in previous large Japanese placements tend to secure positive returns.

• Our bullish outlook (since early-November 2023) remains intact. Continue to ride this trend higher and buy dips as long as ACWI-US and EEM-US remain above supports at $110 and $41-$42.
• In our previous Int’l Compass (June 27) we discussed the rotation that we believed was starting, whereby global Technology (IXN-US) would consolidate as investors rotate to laggard areas.
• This rotation has continued while Technology goes through a healthy consolidation. Continue to focus on other more value-oriented Sectors while Technology/growth consolidates

• The Nikkei 225 INDEX pulled back last week, and it may continue to fall for another 1-2 weeks.
• Make sure you read the Market Reversal Matrix – Charts Analysis section below: we are introducing a possibile new Premium Service using our trend prediction models in algorithmic trading format.
• The price support area to buy the Nikkei 225 would be between 39800 and 39300, this coming week (or the next).

• High ratio of female non-regular workers and low ratio of women in management positions are factors behind the gender wage gap. Government expects to correct the gap in individual companies.
• Companies should improve making it easier for employees returning jobs after temporary leave for childcare/childbirth, and treating them in the same position they were before leaving after temporary leave.
• In order for women to have access to higher education and for women to work without leaving the workforce temporarily, the values that endorse gender inequality must be removed.

• The ¥500bn Offering of Honda shares is now priced (¥1,664.5/share) making it ¥497.46bn. Bookbuilding for retail – 80% of the book – is now. The price today closed at ¥1,665/share. 
• The Offering has follow-on “non-discretionary” demand which is non-negligible. It is worth understanding the amounts and timing.
• The lockups and non-discretionary demand, along with Honda’s relative cheapness as a large cap OEM and likely upcoming offerings on competitors means it has support.

• Invincible Investment (8963 JP) is looking to raise around US$375m in its primary follow-on offering. The proceeds will be used to partially acquire 12 assets from its Sponsor’s affiliates. 
• The REIT has been very active on the acquisition front, and has highlighted its ongoing discussions with its Sponsor for acquisitions. Thus, the current deal should be well flagged.
• In this note, we talk about the deal dynamics and run the deal through our ECM framework.

• Kyoto Financial’s stakes in three key listed Japanese corporates are valued at over 85% of its market capitalization with its total equity holdings accounting for 130%+ of its market capitalization
• Kyoto management intends to retain the bulk of the bank’s equity holdings, opposing the growing trend for Japanese listed companies to unwind crossholdings; management will review this policy in November
• In the near term, we see no major catalyst for Kyoto to accelerate its equity holdings unwind and so, combined with its underwhelming fundamentals, we are negative on Kyoto Financial

• An interview in the Nikkei of Koito Manufacturing (7276 JP) CFO Takahito OTAKE offered the comment that Koito Mfg expected a shareholder return of 130% a year through March 2029.
• The stock popped 19% after lunch on that comment, then fell back to end up 5.0%.
• This is the same pop as we saw end-March. Then it was +24.6% and it stayed up the next day. Same reason for the pop. This was an echo.

• KKR and KSP Kokusai Investments are looking to raise approximately US$1.7bn through an extended secondary follow-on offering, via selling approximately 22.3% of Kokusai Electric (6525 JP). 
• We have looked at the lockup expiry and deal dynamics in our earlier notes.
• In this note, we talk about share price performance since then.

• Isetan Shinjuku expects to post sales in excess of ¥400 billion this year, a record for a single retail store, although most of the growth is from inbound tourists. 
• But Isetan-Mitsukoshi is working to ensure longer term stability through more sophisticated databases and personalised marketing.
• At the same time, it will make better use of real estate assets, investing ¥500 billion around Isetan Shinjuku alone.

• Since Japan’s gender gap index ranks 118th out of 146 countries, stagnating in the lower group, it will take a considerable amount of time to resolve the issue.
• A shortcut to the improvement of women’s status is to greatly improve the gender ratio in the legislature in order to change the current framework for improving women’s status.
• Behind the lagging 103rd place in the ratio of female managers is the lack of progress in higher education for women.

• Q1 FY12/24 results: Revenue JPY12.6bn (+11.2% YoY), Operating profit JPY2.5bn (+19.1% YoY), Net income JPY2.4bn (+29.8% YoY).
• Orders and backlog: Orders JPY12.0bn (+7.6% YoY), Order backlog JPY17.4bn (+9.1% YoY), driven by semiconductor-related applications.
• FY12/24 forecast: Revenue JPY54.0bn (+9.6% YoY), Operating profit JPY10.9bn (+17.4% YoY), Capital investment JPY16.0bn (JPY5.7bn in FY12/23).

• At the beginning of this month, we got a scoop from Reuters about a US$3bn selldown of Honda Motor (7267 JP) by P&C insurers and others. 
• We knew this was coming at some point. The FSA had pushed the insurers to unwind cross-holdings, and it is otherwise of the zeitgeist. 
• It came out as heavily retail-oriented, and the supply/demand details are otherwise interesting. To boot, there is an EPS boost to come.

• Since the US$3.3 billion secondary placement announcement, Honda Motor (7267 JP)’s shares are down 5% from the undisturbed price of JPY1,791 per share (4 July).
• Looking at recent large Japanese placements is instructive to understand the potential trading pattern. So far, Honda’s shares have followed the pattern of previous large placements.
• The offering will likely be priced on 17 July. Investors who have participated in previous large Japanese placements tend to secure positive returns.

• Timee has set an indicative IPO price range of ¥1,350-1,450 per share and will raise US$280m (at the midpoint) where existing shareholders will sell down part of their ownership.
• We expect Timee’s earnings to grow as the company is still in its early stages and with further growth in scale, we expect Timee’s margins to continue to expand further.
• Our analysis shows that Timee Inc (215A JP) IPO is valued attractively as the company has better-than-peer margin profile which suggests that there is further upside to implied valuation multiples.

• Revenue was JPY17.1bn (+17.6% YoY), with life insurance commission revenue at JPY16.4bn (+18.2% YoY).
• Operating profit was JPY2.7bn (-0.2% YoY), with an OPM decrease of 2.8pp YoY to 15.7%.
• Acquisition of 333,000 treasury shares for JPY1.0bn, with cancellation scheduled for August 30, 2024.

• Sales were JPY8.3bn (-0.7% YoY), with secondhand goods accounting for 53.5% of total sales (-0.4pp YoY).
• Operating profit was JPY111mn (-76.3% YoY), with an operating profit margin of 1.3%, down 4.3pp YoY.
• As of end-May 2024, Tay Two had 168 stores, opening five Furuichi stores and two franchise stores.

• 15 shareholders are looking to sell between 73.9-85m shares (US$1.2bn-US$1.38bn) of ASICS Corp (7936 JP) in a secondary offering that will likely be priced on 23 July.
• ASICS Corp (7936 JP) has also announced a huge upward revision to its sales and profit forecasts with EPS expected to increase 61% from earlier estimates.
• Passive buying will be extremely limited in the short-term with the downward pressure offset to a large extent by the sales and earnings revisions.

• There are a bunch of stocks that have underperformed the Nikkei 225 (NKY INDEX) and their peers and could be deleted from global passive portfolios in August.
• The deletion from passive portfolios will lead to a liquidity event at the end of August where passive trackers will need to sell multiple days of ADV.
• Shorts have been built up on all the stocks over the last few months and the extent of the positioning varies across stocks.

• Money Forward released Q2 results post market close on Friday. Revenue growth of +41% YoY beat our estimates by 7%.
• We highlight continued solid financial metrics supported by growth in SaaS ARR and in particular mid-sized corporate growth.
• No change to our bullish long-term view on the company. Stock has run up around 11% ahead of earnings but we see further 20%+ upside from here. 

• A group of shareholders aims to raise up to US$3.2bn via selling around 5% of Honda Motor (7267 JP).
• The possibility of such a selldown was flagged by Reuters prior to the deal launch.
• In our earlier note, we spoke about the deal dynamics. In this note, we talk about the updates since then.

• Lowya began as an online furniture retailer and is still one of the largest in e-commerce, but limited brand awareness has held it back and sales fell last year. 
• Vega Corporation, Lowya’s parent, is now expanding physical stores and offering omnichannel solutions to fix the problem.
• This makes sense in a market where stores remain preeminent and are likely to remain so.

• The dissolution of cross-shareholdings and changing environment in which foreign ownership has risen to 30% have changed the view of activist investors. TSE is one such example of big change.
• It’s convenient that activist investors can use “TSE requested” language that is both easily understood and undeniable by the company when communicating with the portfolio company to improve its issues.
• We must determine whether this is a temporary return to shareholders until the activist investors are removed from the shareholder list, or a shift to value-creating management.

• Hisamitsu Pharmaceutical Co (4530 JP) has reported double-digit growth in revenue and net profit in Q1FY25. However, operating profit decreased 5% YoY due to higher expenses.  
• Topline growth was mainly driven by Salonpas, which was named the world’s no. 1 OTC topical analgesic patch band for the eighth consecutive year.  
• The company reiterated FY25 guidance of 7% revenue growth and low double-digit operating and net profit growth, as an increase in operating profit is expected for the full-year as planned.

• In Q1 FY02/25, TECMIRA reported revenue of JPY2.8bn (+53.7% YoY), operating loss of JPY42mn, and net loss of JPY31mn.
• Revenue growth was driven by strong sales of new Nintendo Switch software and first-time consolidation of Wellmira.
• AI & Cloud segment saw significant revenue increase due to AI chatbot services, while IoT & Devices segment grew 2.6x YoY.

• A group of shareholders aims to raise around US$1.3bn via selling around 11% of ASICS Corp (7936 JP).
• For the two large banks, this will be a cleanup of their cross-shareholding.
• In this note, we will talk about the placement and run the deal through our ECM framework.

• Aequitas Research’s weekly update on the IPOs, placements, lockup expiry and other ECM linked events that were covered by the team over the past week.
• On the IPO front, there were a number of listing in the past week, most of which performed as per our expectations.
• On the placement front, Japan continued to dominate the ECM flows.

• Zozo continues to post solid gains in sales but a slight dip in new customers has led some to suggest that the online fashion mall is reaching its peak. 
• Meanwhile, The Japanese fashion retail sector has seen improved performance from retail stores at the expense of e-commerce, with stores actually outperforming online last year.
• While further growth may be harder to achieve, Zozo has several strategies in place that should help it reach its target of ¥800 billion.