Japan

In today’s briefing:

Last Week in Event SPACE: Toyota, Asia Cement, Hanwha Corp, Kokusai Electric, Keisei Electric
Weekly Deals Digest (14 Jul) – Timee, ASICS, Honda, Kokusai, Sanil, Canvest, Henlius, HKTV, Rex
Is It Difficult to Separate Business Relationships from Proxy Voting?
Enjin (7370 JP): Full-year FY05/24 flash update

Last Week in Event SPACE: Toyota, Asia Cement, Hanwha Corp, Kokusai Electric, Keisei Electric

By David Blennerhassett

The Toyota Group cross-holding ecosystem is in flux. They started with a small announcement by Aisin (7259 JP) but moves have come fast and furious.
Apparently minorities are grumbling to the SFC about the low-balled Offer for Asia Cement China (743 HK). And for good reason. The best course of action? Vote against the Scheme.
Hanwha Corporation (000880 KS) is trading at a steep NAV discount. And the controlling family is making a partial Offer to gain majority control.

Weekly Deals Digest (14 Jul) – Timee, ASICS, Honda, Kokusai, Sanil, Canvest, Henlius, HKTV, Rex

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: ASICS Corp (7936 JP), Honda Motor (7267 JP), Kokusai Electric (6525 JP) placements; Sanil Electric (062040 KS) and Timee Inc (215A JP) IPOs.
Event-Driven developments: Canvest Environmental Protection Group (1381 HK), Shanghai Henlius Biotech (2696 HK), Hong Kong Television Network (1137 HK), Rex Minerals (RXM AU), Second Chance Properties (SCE SP).

Is It Difficult to Separate Business Relationships from Proxy Voting?

Competition little work because the portfolio company had advantage over competitors in business. This distorted competitive environment may have prevented the beneficiaries from receiving the benefits they should have received.
If the business was advanced by competitive advantage through the ownership of shares in the portfolio company, the beneficiaries may not have received the benefits that they should have received.
The question is whether the life insurers are exercising their voting rights properly for the benefit of the beneficiaries in the shares of client companies they hold.

Enjin (7370 JP): Full-year FY05/24 flash update

FY05/24 revenue was JPY3.3bn, operating profit JPY1.0bn, recurring profit JPY1.1bn, and net income JPY749mn, all down YoY.
Enjin’s FY05/25 forecast: revenue JPY2.7bn, operating profit JPY548mn, recurring profit JPY548mn, and net income JPY380mn, all expected to decline YoY.
Enjin revised its medium-term business plan due to HR challenges and plans to release updated targets reflecting the current environment.

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Jul 13

Daily Brief Japan: Daidoh Ltd, ASICS Corp, Kobe Bussan, Softbank Group, Allegro MicroSystems , PR Times Inc, Shin Pro Maint and more

In today’s briefing:

JAPAN ACTIVISM: Activists Sell ALL Their Daidoh (3205) In One Day. Oops 😬
HUGE Asics (7936) Offering – Big Guidance Boost at ATH So Feed the Ducks When They Are Quacking
Kobe Bussan (3038): The Final Cliff
ASICS (7936 JP): A US$1.4 Billion Secondary Offering
ASICS (7936) | Obadele Thompson or Usain Bolt?
Softbank (9984 JP): Arm Headwinds Building, but NAV Discount Is Attractive
Allegro MicroSystems Inc.: Electric Vehicle and Hybrid Market Growth in China As A Critical Growth Lever! – Major Drivers
PR Times Inc (3922 JP): Q1 FY02/25 flash update
Shin Pro Maint (6086 JP): Q1 FY02/25 flash update

JAPAN ACTIVISM: Activists Sell ALL Their Daidoh (3205) In One Day. Oops 😬

Daidoh Ltd (3205 JP) saw an activist “win” at its AGM, another activist bought, the stock popped. I wrote about it. 2hrs later, the Board set a new Div Policy.
¥100/Yr for 3 years in a row. That was 11% of then-current price. Big activist win for Strategic Capital which owned 25% and Murakami-san who had gone substantial 1wk earlier.
Today post-close, Strategic Capital reported it sold everything on 5 July, the next day. WOW. That was half of Maximum Real World Float. Oops. Murakami-san sold too.

HUGE Asics (7936) Offering – Big Guidance Boost at ATH So Feed the Ducks When They Are Quacking

Today after the close, ASICS Corp (7936 JP) announced a very large secondary offering. It points out that as a global brand, it needs global-standard corporate governance.
As such, it says they’ve been discussing sales with crossholders. But we knew the cross-holders were going to sell. This offering is 85mm shares, ¥210bn at last. That’s big.
The stock has doubled year-to-date. Today they raised FY guidance BIGLY (+60% OP and NP). Now a huge offering. This seems like a “feed the ducks when they’re quacking” situation.

Kobe Bussan (3038): The Final Cliff

By Michael Allen

Kobe Bussan continues to hit new lows relative to the median Japanese retailer, as cheaper alternatives continue to rebound.
Kobe was one of the greatest beneficiaries in Japan of the Pandemic, but it is stuck at 10% growth which is no longer unusual.
Kobe’s wholesale model makes it difficult to benefit from food price inflation like other food retailers. Kobe Bussan could drop another 50% before reaching fair value.

ASICS (7936 JP): A US$1.4 Billion Secondary Offering

ASICS Corp (7936 JP) has announced a secondary offering of up to 85.0 million shares (including overallotment). At the close, the offer, including overallotment, is worth JPY218 billion (US$1.4 billion).
Asics’ goal with the secondary offering is to eliminate cross-shareholdings. Asics also announced a material upgrade to full-year forecasts to offset the impact of the offering.
Looking at recent large Japanese placements is instructive for understanding the potential offer price. The pricing date will fall between 23 and 26 July (likely 23 July).

ASICS (7936) | Obadele Thompson or Usain Bolt?

ASICS is revising up its full year forecasts, now expecting sales to reach a record ¥660 billion , up 15.7% year-over-year. There is a strong currency tail wind.
Still “you gotta be in it to win it..” ASICS is currently crushing it, while Nike flounders
A large secondary offering will likely hit the share price in the short term; there are two key risks…but it could be a good opportunity to buy.

Softbank (9984 JP): Arm Headwinds Building, but NAV Discount Is Attractive

By Victor Galliano

Since Elliott Management emerged as a shareholder in SoftBank group last month, the share price has rallied sharply, largely driven by the further appreciation of the Arm Holding share price
SoftBank management is currently focused on growing its Gen AI investment portfolio and appears to have shelved share buybacks for now, which is likely to disappoint minority shareholders
Despite the above challenges and the risk of de-rating at Arm, we remain positive on Softbank shares as they trade at a historically high 54%+ discount to the estimated NAV

Allegro MicroSystems Inc.: Electric Vehicle and Hybrid Market Growth in China As A Critical Growth Lever! – Major Drivers

By Baptista Research

Allegro MicroSystems has recently reported their fiscal fourth quarter and full year 2024 results, providing insights into their financial health and future expectations.
The company managed to surpass its fourth-quarter revenue and earnings per share (EPS) guidance despite facing a challenging macroeconomic environment, highlighting the dedication and efficiency of its team.
The fiscal year 2024 demonstrated a revenue growth of 8% and an EPS growth of 5%, with notable growth in e-Mobility at 38%, signifying strong market performance and strategic execution.

PR Times Inc (3922 JP): Q1 FY02/25 flash update

In Q1 FY02/25, revenue was JPY1.9bn (+19.6% YoY), operating profit JPY484mn (+41.0% YoY), net income JPY321mn (+38.9% YoY).
PR TIMES users totaled 97,948 (+17.2% YoY); Jooto paying users 1,801 (-3.2% YoY); Tayori paying accounts 1,177 (+28.1% YoY).
SG&A expenses in Q1 FY02/25 increased 5.6% YoY for Sales & Marketing, 13.4% for R&D, 7.6% for General & Administrative.

Shin Pro Maint (6086 JP): Q1 FY02/25 flash update

Revenue increased by 13.4% YoY to JPY5.8bn, driven by new customers and expanded maintenance services for existing customers.
Operating profit rose by 32.3% YoY to JPY342mn, with an OPM up 0.8pp YoY to 5.9%.
Gross profit reached JPY1.3bn (+12.8% YoY), with a GPM of 22.6% (-0.1pp YoY), and SG&A expenses were JPY960mn (+7.1% YoY).

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Jul 12

Daily Brief Japan: Fast Retailing, Keisei Electric Railway Co, Yoshinoya Holdings, Nitto Kogyo, TSE Tokyo Price Index TOPIX, Softcreate Holdings and more

In today’s briefing:

Fast Retailing (9983) – Great (Bte) Earnings Now Out of The Way; Anticipating End-July Capping Data
[JAPAN ACTIVISM] Keisei Elec (9009) AGM Result Not Salutary, Tough To Win On This Stance
Fast Retailing (9983) | Q3 Masterclass
Yoshinoya Holdings (9861 JP): Q1 FY02/25 flash update
Nitto Kogyo Corporation (6651 JP) – 4Q Follow-Up
Adopting DOE Is Step Forward, but Explanation Needed to Step into Strategic Allocation of Cash Flow
Softcreate Holdings (3371 JP): Coverage initiation

Fast Retailing (9983) – Great (Bte) Earnings Now Out of The Way; Anticipating End-July Capping Data

Yesterday after the close, Fast Retailing (9983 JP) reported salutary Q3 earnings, and raised its full-year (to August) guidance and its final dividend forecast (by ¥50/share)
Q3 revenue and profit gained sharply (Rev +13.5%, OP +31.2%) everywhere but Greater China. OPMs were up, especially in Japan. Early summer has been good, despite FX impact.
New guidance is above consensus, the ADR popped, and with slightly stronger yen on US CPI, that should help. But we approach end-July. Expect lots of pop-sellers.

[JAPAN ACTIVISM] Keisei Elec (9009) AGM Result Not Salutary, Tough To Win On This Stance

A week ago, the Keisei Electric Railway Co (9009 JP) AGM took place. The activist which had proposed a shareholder resolution saw ISS and Glass Lewis support.
But that was to no avail as the shareholder proposal got 29.89% of the votes, and 26.15% of total voting rights. This likely informs the near-term future of such proposals.
I expect the ask needs to change, and the agenda item needs to be difficult to be against.

Fast Retailing (9983) | Q3 Masterclass

Fast Retailing delivered an impressive Q3 report. Sales +10% YoY were +3% above our expectations.
Big jump in profitability. OP +31% YoY to Y145b driven by +57% jump in Uniqlo Japan earnings. Record consolidated OPM ~19%
Uniqlo’s performance is leaving global peers in its wake. Profitability now rivalling Inditex. However, valuations remain at a premium

Yoshinoya Holdings (9861 JP): Q1 FY02/25 flash update

Sales increased by 7.4% YoY to JPY47.5bn, driven by store expansion and effective product and sales strategies.
Operating profit decreased by 38.6% YoY to JPY880mn, impacted by rising labor and raw material costs.
Net income attributable to owners of the parent fell by 33.5% YoY to JPY681mn, despite higher sales and price revisions.

Nitto Kogyo Corporation (6651 JP) – 4Q Follow-Up

By Sessa Investment Research

NITTO KOGYO Corporation (hereafter, the Company) announced its earnings results for FY2024/3 on May 15, 2024.
In addition to posting record net sales, the Company recorded profit growth for all three of its segments.
While the price of raw materials and parts rose, the Company’s gross profit margin improved 1.4 ppt YoY to 26.8%.

Adopting DOE Is Step Forward, but Explanation Needed to Step into Strategic Allocation of Cash Flow

Since non-cash expenses are added to net profit for many manufacturing companies, cash on hand will not decrease at all if the dividend policy is based on net profit.
Using DOE as the basis for dividend policy would help improve ROE because it places certain constraints on the expansion of shareholders’ equity.
However, the challenge for raising ROE is the strategic allocation of excess cash on hand and cash flow to shareholder returns and growth investments to improve profitability.

Softcreate Holdings (3371 JP): Coverage initiation

In FY03/24, revenue grew 15.1% YoY to JPY27.9bn, operating profit increased 19.6% YoY to JPY5.2bn, recurring profit increased 19.3% YoY to JPY5.4bn, and net income attributable to owners of the parent increased 19.0% YoY to JPY3.3bn.
In the EC Solutions business, revenue increased 16.7% YoY to JPY15.6bn, and recurring profit rose 17.8% YoY to JPY4.0bn, mainly due to growth in revenue from e-commerce site development and e-commerce cloud services.
In the IT Solutions business, revenue grew 12.7% YoY to JPY12.5bn and recurring profit rose 8.2% YoY to JPY2.8bn owing to higher revenue from IT cloud services and security and infrastructure construction.

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Jul 11

Daily Brief Japan: Kokusai Electric , Timee Inc, Creek & River, Shift Inc and more

In today’s briefing:

Kokusai Elec (6525) ¥300bn+ Offering at ATH – Almost a Second IPO
Kokusai Electric (6525 JP): Placement, Buyback & Index Flows
Kokusai Electric (6525 JP): A US$2.0 Billion Secondary Offering
Kokusai Electric Placement – US$1.7bn Selldown for a Good Quality Name
Timee IPO: Strong Business Model with Improving Financials
Creek & River (4763 JP): Q1 FY02/25 flash update
Shift Inc (3697 JP): Q3 FY08/24 flash update

Kokusai Elec (6525) ¥300bn+ Offering at ATH – Almost a Second IPO

Today post-close we got confirmation of yesterday’s Reuters scoop of a secondary selldown on Kokusai Electric (6525 JP) after the stock fell 7.2% in heavy volume.
KKR HKE LP and KSP Kokusai LLC (Koch) will together sell 52.5mm shares plus another 7.8mm+ in the greenshoe. Split is 50/50 domestic/international.
This is 60+mm shares against 51mm shares held by non-passive holders ex-Capital (who has been selling). It’s a lot of stock at a high price.

Kokusai Electric (6525 JP): Placement, Buyback & Index Flows

By Brian Freitas

KKR and KSP Kokusai will offer 52.51m-60.38m shares (US$1.76bn-2bn) of Kokusai Electric (6525 JP) in a secondary offering that will likely be priced on 22 July.
Kokusai Electric (6525 JP) will also buy back up to JPY 18bn of its shares. At the last close, that is 3.33m shares (1.2x ADV).
Trackers of one global index will buy stock at the time of settlement of the shares. The (much) bigger buying will come at the end of August.

Kokusai Electric (6525 JP): A US$2.0 Billion Secondary Offering

By Shifara Samsudeen, ACMA, CGMA

Kokusai Electric (6525 JP) has announced a secondary offering of up to 60.4 million shares (including overallotment). At the close, the offer, including overallotment, is worth JPY326 billion (US$2.0 billion).
The secondary offering facilitates KKR and KSP Kokusai Investments’ ability to crystallise substantial IPO gains—the shares are trading at 3.2x the IPO price of JPY1,840.
Looking at recent large Japanese placements is instructive for understanding the potential offer price. The pricing date will fall between 22 and 24 July (likely 22 July).

Kokusai Electric Placement – US$1.7bn Selldown for a Good Quality Name

By Ethan Aw

KKR & Co (KKR US) and KSP Kokusai Investments are looking to raise approximately US$1.7bn through an extended secondary follow-on offering, selling approximately 52.5m shares of Kokusai Electric (6525 JP)’s stock.
The deal is a large one to digest at 19 days of three month ADV.
In this note, we will talk about the placement and run the deal through our ECM framework.

Timee IPO: Strong Business Model with Improving Financials

Timee Inc (215A JP) operates an on-demand job platform in Japan and the company has filed for an IPO where existing shareholders will offer shares worth of $290m.
The company’s top line saw accelerated growth during last 4-5 years driven by increase in no. of clients/workers while Timee also has turned around its profitability during the last 2-years.
In this insight, we have discussed the company’s business model and financials in detail and we will discuss our forecasts and valuation in a follow-up insight.

Creek & River (4763 JP): Q1 FY02/25 flash update

Sales increased by JPY108mn (+0.8% YoY), driven by growth in Creative (Japan), Accounting and Legal, and Other sectors.
Operating profit decreased by JPY318mn (-20.2% YoY), mainly due to reduced profits in Creative (Japan) and Medical Staffing.
Sales and operating profit decreased YoY due to reduced COVID-19 vaccination projects and structural reforms in Medical Principle.

Shift Inc (3697 JP): Q3 FY08/24 flash update

In cumulative Q3 FY08/24, the company reported sales of JPY81.1bn (+28.1% YoY) and net income of JPY3.3bn (-17.2% YoY).
Q3 GPM was 31.7%, with the Software Testing segment reporting JPY52.4bn in sales and JPY17.5bn in gross profit.
Software Development segment sales were JPY25.7bn (+33.6% YoY), while operating profit declined due to lower utilization at subsidiaries.

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Jul 10

Daily Brief Japan: Kokusai Electric , Aisin , Recruit Holdings, Ryohin Keikaku, CELSYS, Mercari , Aeon Delight, TSE Tokyo Price Index TOPIX and more

In today’s briefing:

KKR To Sell a 20-22% Stake in Kokusai Electric (6525)?
Toyota Group Cross-Holding Structure Primer – Holdings, Unwind Progress, Buyback Policies, Etc
Recruit (6098 JP) – BIG Headline Buyback But Disappointing if That Is Best Use Of Cash
Nikkei 225 Index Rebalance Preview (Sep 2024): Potential Adds/Deletes, Capping & Funding Changes
Kokusai Electric (6525 JP): Rumoured KKR US$1.8 Billion Secondary Offering
TOPIX Inclusions: Who Is Ready (July 2024)
Mercari (4385) | Fintech and Gig Economy as Key Catalysts
Aeon Delight (9787 JP): Q1 FY02/25 flash update
Faster Management Improvement Requires a Sense of Tension in Management

KKR To Sell a 20-22% Stake in Kokusai Electric (6525)?

Today, a Reuters article came out saying that KKR would sell down half its 43% stake in Kokusai Electric (6525 JP) according to “two people familiar with the matter.”
The article also said Kokusai Electric would buy back shares. Kokusai responded with a TDNET release saying “we did not release this info but we are considering various capital policies.
It pays to look at the Shareholder Structure as it stands. This is bigger than it looks.

Toyota Group Cross-Holding Structure Primer – Holdings, Unwind Progress, Buyback Policies, Etc

Last September in the release of its new Mid-Term Management Plan, Toyota Group member Aisin (7259 JP) announced a plan to cut cross-holdings to zero. JTEKT Corp (6473 JP) followed suit.
It started with a selldown of Denso Corp (6902 JP), then Toyota Industries (6201 JP), now Aisin. Last FY, Toyota Group cos reduced crossholdings by ¥870bn. This year will be more.
Attached below is a general breakdown of Toyota Group cross-holdings, discussion of cross-holding policies, and analysis of what is next, and what is not.

Recruit (6098 JP) – BIG Headline Buyback But Disappointing if That Is Best Use Of Cash

Last December, Recruit Holdings (6098 JP) announced a ¥200bn buyback which sounded big but with lots of cross-holders, wasn’t huge. The stock is up 80% in 6+ months since.
Today, the company announced a new buyback of ¥600bn. This is very aggressive, and at 25x EBITDA and 40x PER, is probably due to demand to sell.
Crossholders now hold ¥2trln which is three-plus times this buyback. And if the price were to rise 10% a year for 3yrs, it would be four times.

Nikkei 225 Index Rebalance Preview (Sep 2024): Potential Adds/Deletes, Capping & Funding Changes

By Brian Freitas

The review period for the Nikkei 225 Index September rebalance ends in three weeks. There could be three changes at the rebalance with sector balance used for the additions.
Depending on the changes, passive trackers will need to buy between 3-57x ADV (2.4%-24% of real float) on the inclusions and sell between 3.7-8.4x ADV on the deletions.
Fast Retailing (9983 JP)‘s index weight is currently higher than 10% and that will result in capping in September. Passives will need to sell 6x ADV in the stock.

Kokusai Electric (6525 JP): Rumoured KKR US$1.8 Billion Secondary Offering

Reuters reported that KKR & Co (KKR US), the largest Kokusai Electric (6525 JP) shareholder, plans to sell about half of its 43% stake, worth around JPY300 billion.
As Kokusai’s shares are trading at 3.2x the IPO price of JPY1,840, KKR would be tempted to reduce its stake further. The 180-day IPO lock-up period expired on 22 April.
Kokusai anticipates a return to growth and margin improvement. However, Kokusai trades at a material premium to peer multiples and is fully priced.

TOPIX Inclusions: Who Is Ready (July 2024)

By Janaghan Jeyakumar, CFA

Quiddity’s “Who is Ready” series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.
In the last few days, SUNWELS Co (9229 JP) and Macbee Planet (7095 JP) have announced their moves to TSE prime which would eventually trigger a TOPIX Inclusion event.
Macbee Planet was in our highest conviction list but SUNWELS Co was not. In this insight, we have made some modifications to our methodology to improve future hit rates.

Mercari (4385) | Fintech and Gig Economy as Key Catalysts

Mercari’s US operations, responsible for major losses, saw a workforce reduction by 45%, potentially preceding a market exit to improve overall margins.
Fintech growth is strong, with Mercari issuing over 3 million credit cards, achieving a 67% YoY credit balance increase, despite current operational losses
Mercari Hallo, an on-demand work platform, has rapidly gained users and business partners, positioning it to capitalize on Japan’s growing gig economy.

Aeon Delight (9787 JP): Q1 FY02/25 flash update

Sales increased by 2.5% YoY to JPY81.1bn, operating profit decreased by 5.2% YoY to JPY3.3bn.
Sales growth in Facilities Management, Security Services, Cleaning Services, and Materials and Supplies Sourcing Services contributed to overall revenue increase.
Operating profit fell YoY due to higher SG&A expenses despite segment profit growth in several divisions.

Faster Management Improvement Requires a Sense of Tension in Management

Now that the defensive wall of cross-shareholdings has been lowered, the strategies of activist investors are beginning to work, as companies are forced to listen to demands of their shareholders.
Many companies continued to be reappointed at shareholder meetings without fulfilling the role of management in maximizing shareholder interests and carrying out sustainable expansion.
For faster management improvement, further increasing the sense of tension in management requires the elimination of further cross-shareholdings and a change in the mindset of domestic investors, including individual investors.

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Jul 08

Daily Brief Japan: Kawasaki Heavy Industries, Yaoko Co Ltd, Skymark Airlines, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

Kawasaki Heavy (7012) | Hydrogen Strategy Ignites Stock Market
Yaoko: 34 Years of Record Profits
Skymark Airlines Lockup Expiry – Still Doesn’t Seem Cheap with 50% of the Shares Being Unlocked
Diversity and Human Rights Are Also Challenges in Solving the Problem of Population Decline

Kawasaki Heavy (7012) | Hydrogen Strategy Ignites Stock Market

Japan’s newly approved hydrogen strategy has ignited a stock market rally in related names: KHI (+20%) Iwatani (+15%) Kansai Elec (+2%)
Japan government approved higher supply targets for hydrogen to bring the hydrogen strategy in line with the most recent energy mix targets
Kawasaki Heavy Industries plays a key role in Japan’s hydrogen supply chain, specializing in liquefied hydrogen and innovative initiatives

Yaoko: 34 Years of Record Profits

By Michael Causton

One of the few long-term success stories in supermarkets is Yaoko, which recently celebrated 34 consecutive years of record operating profits.
Thanks to a combination of innovation and attention to detail, Yaoko’s financial performance continues to trounce larger rivals in the highly competitive food market in Kanto.
With Japan’s supermarket sector about to enter a period of consolidation, Yaoko will be one of the leaders.

Skymark Airlines Lockup Expiry – Still Doesn’t Seem Cheap with 50% of the Shares Being Unlocked

By Ethan Aw

Skymark Airlines (9204 JP) raised US$242m in its Japan IPO. The shares began to trade on 14th Dec 2022, its six-month lockup will expire on 11th Jun 2023.
Skymark Airlines (SA) is a Japanese low-cost airline, being the third largest domestic airline according to the company. Unlike major airlines and other low-cost carriers, Skymark operates only domestic flights.
In this note, we will talk about the lock-up dynamics and updates since our last note.

Diversity and Human Rights Are Also Challenges in Solving the Problem of Population Decline

Population decline is not far in the future, and a situation is looming where rural municipalities will no longer be able to function to support social infrastructure.
The government is sticking to maintain the foreign technical internship in industries where labor is in short supply, and managing the number of foreign workers accepted for 5-10 year time-limit.
Accepting foreigners means that people must live in a society that recognizes diversity and each other’s human rights. Unfortunately, we are not ready to create such a society.

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Jul 08

Daily Brief Japan: TSE Tokyo Price Index TOPIX, Timee Inc, Toyota Motor and more

In today’s briefing:

Fy23 GPIF Results and Portfolio Changes – Outlook for FY24
Timee (215A JP) IPO: Valuation Insights
Timee Pre-IPO – Thoughts on Valuation – Primed for a Decent Upside at the Current Range
ECM Weekly (8th July 2024) – Japan Cross-Shareholding, Honda, Aisin, Timee, Chenqi, Cirrus, Emcure
The Key to Higher ROE Is Higher Profit Margins and Faster Efforts by Smaller Companies

Fy23 GPIF Results and Portfolio Changes – Outlook for FY24

Last year, the GPIF as a whole returned 22.67% in yen terms. As a whole, GPIF outperformed its benchmarks by 0.04% after paying 0.02% in fees and costs.
GPIF traded ¥30trln of assets – relatively high turnover for a fund which espouses very low turnover – but there’s a reason for that. There were also sharp active/passive moves.
This year is the last year in the “cycle” of the “old” Policy Allocation Framework. A new one is likely to be introduced this year.

Timee (215A JP) IPO: Valuation Insights

Timee Inc (215A JP), a leading part-time job platform in Japan, is seeking to raise up to US$286 million. Book-building runs from 9 to 23 July.
We previously discussed the IPO in Timee (215A JP) IPO: The Bull Case and Timee (215A JP) IPO: The Bear Case.
In this note, we discuss valuation. Our analysis suggests that Timee is attractively valued at the IPO price range in the context of the forecasted growth.

Timee Pre-IPO – Thoughts on Valuation – Primed for a Decent Upside at the Current Range

By Clarence Chu

Timee Inc (215A JP) is looking to raise US$290m in its Japan IPO. The IPO will be a 100% secondary selldown by existing shareholders.
Timee operates an on-demand staffing platform that connects part-time jobseekers with businesses in Japan.
In an earlier note, we looked at the firm’s past performance and peer comparison. In this note, we discuss our thoughts on valuation.

ECM Weekly (8th July 2024) – Japan Cross-Shareholding, Honda, Aisin, Timee, Chenqi, Cirrus, Emcure

By Sumeet Singh

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, we looked at the recently launced offerings of Timee Inc , Chenqi Technology Limited and Cirrus Aircraft.
On the placement front, this week too was dominated by the cross-shareholding unwinds, this time in Honda Motor (7267 JP).

The Key to Higher ROE Is Higher Profit Margins and Faster Efforts by Smaller Companies

Since TSE’s request, more companies have used ROE or ROIC as KPIs in mid-term management plans, but even now, more companies only indicate targets for sales, operating profit, etc.
Larger companies have been the first to raise ROE; the key will be for smaller companies, which have been slower to improve their ROE, to raise their ROE.
Many companies have only just begun to reduce their policy shareholdings and strengthen shareholder returns, and are still in the process of addressing the core issue of increasing profit margins.

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Jul 07

Daily Brief Japan: Honda Motor and more

In today’s briefing:

Last Week in Event SPACE: Barito Renewables, Honda, Raffles Medical, Daidoh, Hanwha Corp

Last Week in Event SPACE: Barito Renewables, Honda, Raffles Medical, Daidoh, Hanwha Corp

By David Blennerhassett

It’s just a question of when, not if, the bubble bursts for Barito Renewables Energy (BREN IJ), which is up 1,200% since it October 2023 IPO.
A Reuters article suggests a ¥500bn secondary offering for Honda Motor (7267 JP). Honda has since said there is smoke. And we can assume there is fire.
Loo Choon Yong, Raffles Medical Group (RFMD SP)‘s founder and major shareholder, continues to chip away at minorities, and now holds 54.944%,

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Jul 06

Daily Brief Japan: Aisin , Mitsui Matsushima, Onward Holdings, TSE Tokyo Price Index TOPIX, Bike O & Co Ltd and more

In today’s briefing:

Aisin (7259 JP): The Current Playbook
JAPAN ACTIVISM: Murakami Target Mitsui Matsushima Cleans Up
Onward Holdings (8016 JP): Q1 FY02/25 flash update
Whether Measures to Meet TSE’s Request Increased Certainty Will Be Tested at 2Q Financial Reporting
Bike O & Co Ltd (3377 JP): 1H FY11/23 flash update

Aisin (7259 JP): The Current Playbook

Since the US$1.1 billion secondary placement announcement, Aisin (7259 JP)’s shares are up 2.5% from the undisturbed price of JPY5,243 per share (27 June).
Looking at recent large Japanese placements is instructive to understand the potential trading pattern. So far, Aisin’s shares have deviated from the pattern of previous large placements.
The offering will likely be priced on 8 July. Investors who have participated in previous large Japanese placements tend to secure positive returns.

JAPAN ACTIVISM: Murakami Target Mitsui Matsushima Cleans Up

On 20 May, I wrote that Japanese activist MURAKAMI Yoshiaki and relations/affiliates had gone from 5% to 20% of Mitsui Matsushima (1518 JP) in 5 trading days.
I wondered if it was real, or a pump & dump, but they went to near 30% in following days. THEN they drifted off as Murakami-Fille sold while Murakami-Père bought.
The reasoning was not clear, but the story had real potential. Still does. Today, shareholders got more good news.

Onward Holdings (8016 JP): Q1 FY02/25 flash update

Sales rose JPY1.5bn YoY (+2.9% YoY) to JPY51.4bn, driven by higher sales in domestic and overseas apparel businesses.
Operating profit decreased JPY306mn YoY (-5.7% YoY) to JPY5.1bn due to a decline in domestic profit and wider overseas losses.
Full-year forecasts revised for recurring profit and net income attributable to owners of the parent, reflecting better-than-expected affiliate performance.

Whether Measures to Meet TSE’s Request Increased Certainty Will Be Tested at 2Q Financial Reporting

If a company hasn’t improved its return such as ROE, it’s difficult to buy its shares until the plan is more certain that cash flow will expand in the future.
Since cash flow margin must be raised to increase cash flow, the ultimate goal is to achieve sales growth while raising the profit margin on sales.
Cutting costs alone isn’t enough; cash must be used for investments that will lead to future growth, so cash must be used for growth investments as well as stock repurchases.

Bike O & Co Ltd (3377 JP): 1H FY11/23 flash update

In 1H FY11/24, revenue was JPY16.5bn (-5.5% YoY), with an operating loss of JPY244mn and net loss of JPY146mn.
Wholesale revenue was JPY8.7bn (-17.1% YoY), retail revenue JPY6.5bn (-0.7% YoY), and other revenue JPY1.3bn (+191.1% YoY).
SG&A expenses totaled JPY6.3bn (+4.3% YoY), with selling expenses at JPY2.4bn (-2.9% YoY) and personnel expenses JPY2.2bn (+4.9% YoY).

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Jul 05

Daily Brief Japan: Honda Motor, Daidoh Ltd, SUNWELS Co, Timee Inc, Aisin , Digital Arts, Tsubakimoto Kogyo, Srg Takamiya and more

In today’s briefing:

Big ¥500bn Honda (7267) Offering Is Small
JAPAN ACTIVISM: Strategic Capital Target Daido (3205) Now A Murakami Target Too
Sunwels Co (9229) – Nursing Care Operator Offering and TOPIX Inclusion
Honda (7267 JP): A US$3.3 Billion Secondary Offering
Honda Motor Placement – Large in Size, Relatively Small in Other Terms
Timee (215A JP) IPO: The Bear Case
Aisin Corp Placement – Follow Up – Could Fall into a Similar Fate as past Large JP Secondary Deals
Digital Arts: Decision to Deconsolidate DAC Business – A Positive Move
Tsubakimoto Kogyo (8052 Jp) – Record Net Sales for Second Consecutive Year
4Q Follow-Up – Takamiya (2445 JP)

Big ¥500bn Honda (7267) Offering Is Small

Just pre-close on 2 July, Reuters carried an article suggesting a ¥500bn secondary offering in Honda Motor (7267 JP) as insurers sold. The stock fell 4% in minutes.
Honda semi-confirmed but it took two days to get to the details, now out. The stock climbed in the meantime.
At launch, this deal is two-thirds covered by buyback + passive demand but the supply is heavily-weighted to retail. Cheaper than it looks, lots of moving parts. Read the details!

JAPAN ACTIVISM: Strategic Capital Target Daido (3205) Now A Murakami Target Too

Small cap Japanese manufacturer and purveyor of apparel Daidoh Ltd (3205 JP) has consistently been a target for value investors. In late 2022, Strategic Capital went over 5%.
They have bought more, and as of end-March, they declared 24.85% of TSO (28% of voting rights), but they have 33%. They made proposals for the AGM. They won one.
Now Murakami-san has bought in, going over 5%. This gets interesting. Together they have 39.4% as of last week, and probably more now. That should get them 50+% next AGM/EGM.

Sunwels Co (9229) – Nursing Care Operator Offering and TOPIX Inclusion

On 2 July 2024, nursing care operator SUNWELS Co (9229 JP) announced a sale of Treasury shares and newly-issued shares, and with it, a move to TSE Prime (therefore TOPIX)
The stock, of course, popped. The stock starts with VERY low float because the CEO and his company own 64% of shares out ex-treasury.
The offering is much larger than the TOPIX inclusion, so this is really more about the growth story.

Honda (7267 JP): A US$3.3 Billion Secondary Offering

Honda Motor (7267 JP) has announced a secondary offering of up to 298.9 million shares (including overallotment). At the close, the offer, including overallotment, is worth JPY535 billion (US$3.3 million).
The offering is another sign that the unwinding of cross-shareholdings is catching pace as part of Japan’s corporate governance reforms.
Looking at recent large Japanese placements is instructive for understanding the potential offer price. The pricing date will fall between 17 and 22 July (likely 17 July).

Honda Motor Placement – Large in Size, Relatively Small in Other Terms

By Sumeet Singh

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 earlier in the week by Reuters. Thus, the deal is well flagged.
In this note, we will talk about the placement and run the deal through our ECM framework.

Timee (215A JP) IPO: The Bear Case