Japan

• In late March, AZ-Com Maruwa Holdings (9090 JP) made an unsolicited (“hostile”) bid for Chilled & Frozen Logistics Holdings (9099 JP) at a near 50% premium at ¥3,000/share.
• It traded through, then C&F ran a bid solicitation process, got four bids. Since the day AFTER that announcement, the stock is up 56%. We approach Alps Logistics multiples.
• This deal doesn’t get the split price benefit that HTS and Alps Logistics did. And it is a fundamentally different logistics business. And target management dynamics are different.

• Fancl Corp (4921 JP)‘s share price has declined 18% year-to-date, greatly under-performing the Nikkei 225 (NKY INDEX) which was up 17% year-to-date. 
• The company recently announced FY24 results (fiscal year ending March).  Sales grew 7% yoy and operating profit grew 60% yoy in FY24. 
• I believe the stock price is attractive at 23x 2024 PE with 15% expected earnings CAGR for the next 3 years.

• Daifuku released FY3/24 results on 10 May. Since then the share price has declined by 15%, giving investors an attractive entry point.
• Daifuku is a key beneficiary of warehouse automation, which is forecast to grow at a CAGR of over 6%, with industry spend projected to reach $37 billion by 2030
• We expect the market to price in an order recovery in the core electronics segment and believe that the MTP is yet to be factored into the current share price.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• SJM Holdings
• Softbank Group
• Yankuang Energy Group

• Since the US$535 million secondary placement announcement, Modec Inc (6269 JP)’s shares are down 15% from the undisturbed price of JPY3,320 per share (14 May).
• Looking at recent large Japanese placements is instructive to understand the potential trading pattern. So far, Modec’s shares have followed the pattern of previous large placements.
• The offering will likely be priced on 22 May. Investors who have participated in previous large Japanese placements tend to secure positive returns.

• Noted Japanese activist MURAKAMI Yoshiaki and his entities and relations went from 4.98% to 19.88% of Mitsui Matsushima (1518 JP) at an average ¥3,500/share from 2 May through 10 May.
• Then they bought an additional 5.44% on 13 May, just before earnings, in the midst of a huge run-up, paying 40% more for that 5% than the first 5%. 
• I thought that might be the end, but in two days, they have bought an additional 9+%. There is something else going on. It is worthy of your attention. 

• Japan Post Insurance (7181 JP) shows us that worsening policies in force is far more important to earnings than staggering growth of new policies.
• Returns and profit growth are weak and this should matter more than a puritanical focus on new policies, embedded value.
• Non-Operational line items, likely hedging costs and reserve adjustments, are cancelling out most all positives in operations.

• Since shareholder proposals related to “TSE requests” are unlikely to be passed at the AGM, many companies are likely to have capital profitability improvement plans that merely indicate effort targets.
• The outperformance of TOPIX by the company that announced the medium-term management plan can be attributed to the short-term outperformance of the company that announced the share repurchase.
• Investors don’t trust the contents of “mid-term management plan” because they are focusing on more reliable shareholder return rather than betting on improving operating margins over the uncertain three-year horizon.

• Until recently, Onward Holdings looked set for a gradual decline into insignificance like its main channel of regional department stores. 
• But Onward has instead become an exemplar of how to make omnichannel retailing work, with growing sales across both online and a burgeoning new store network.
• Like some other old apparel firms, Onward is showing that there is significant upside top and bottom line growth in premium apparel markets.

• Today post-close, Denso Corp (6902 JP) (via BofA) announced a selldown of 78,127,800 shares of Renesas Electronics (6723 JP). This is the latest in a line of block exits.  
• There was the 130mm offering in November last year by INCJ. There was 123mm shares in Jan 2024 by NEC and Hitachi. A month later, 50mm shares from Mitsubishi Electric.
• In general, they have been absorbed, but one hasn’t needed to buy in the market. Some have broken price. Here, the pricing range is aggressive.

• Carlyle has a deal to buy Kfc Holdings Japan (9873 JP). ¥6,500/share is a 78% premium to undisturbed as a professional holder sells in an auction to the highest bidder.
• That’s a great format for achieving a great price. And we got one. This should get done easily.
• Importantly, the Bidco is named Crispy KK. It is 100% owned by Juicy KK. Juicy KK itself is 100% owned by Crispy Holdings L.P. Someone had some fun.

• Denso Corp (6902 JP) is looking to raise US$1.39bn from selling a portion of its stake in Renesas Electronics (6723 JP).
• DENSO’s selldown is a small one at just 4.3 days of ADV. While there is an overhang of around 4% of TSO, DENSO will be locked up for 270 days.
• In this note, we will talk about the placement and run the deal through our ECM framework.

• Mitsui Matsushima (1518 JP) was a coal company starting over 100yrs ago. A bunch of years ago it started a solar energy business and then started M&A to diversify.
• Coal closed last year and since, MMH has become an investment holdco for “basic businesses” (drinking straws, conveyor system chains, document shredders, weighing machines, crystal measuring devices, mask blanks, etc).
• Murakami Group accumulated 4.98% in five weeks, then the next 14.9% in five days. Pump & Dump like Pacific Metals? Activism like JAFCO? Or something else more interesting?

• Kfc Holdings Japan (9873 JP) has recommended a tender offer from Carlyle Group / (CG US) at JPY6,500 per share, a 20.4% premium to the last close. 
• 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 31.54% ownership ratio.
• Due to the Mitsubishi Corp (8058 JP) irrevocable, the minimum acceptance condition requires a 48.6% minority acceptance rate. The acceptance condition is achievable as the offer is a knockout bid. 

• Company Forecasts extremely conservative at current and expected metal prices
• Scarcity Value for a liquid, large-cap gold miner in Japan
• Balance Sheet will allow future share buybacks and dividend in the harvesting phase

• In Q3FY24, Asahi Intecc (7747 JP) reported 8% YoY increase in revenue to ¥26B, ahead of estimate of ¥24B, mainly driven by the exchange rate impact of higher foreign currencies.
• Higher SG&A expenses impacted the profitability. Q3FY24 operating profit margin declined to 23.3% from 26.6% in Q3FY23, while net profit margin decreased to 16.0% from 18.5% during the same time.
• In Q4FY24, revenue is expected to decline 3% YoY to ¥19.6B. Operating and net profits are anticipated to plunge 74% and 26%, YoY to ¥417M and ¥832M, respectively.

• Following up on our earlier cross-shareholding notes, in this note we look at Mitsubishi UFJ Financial (MUFG) (8306 JP)’s cross-shareholding.
• MUFG had a stake over US$100m in at least 47 listed Japanese stocks, amounting to a total of around US$19bn.
• In this note, we take a look at its stakes in various companies to see which ones could possibly be candidates for further selldowns.

• Excluding the special factor of companies applying transitional measures moving to standard, the pace of natural decrease of prime market listed companies is moderate.
• Companies with high foreign shareholdings and large market capitalization are already highly valued. Companies that are not have investment opportunities that are often at a discount due to liquidity.
• Nearly half of the companies are companies with large shareholders holding more than 20% equity; investment opportunities are expected to increase as companies go private through TOBs and MBOs.

• The company has slashed FY Sep-24 guidance after missing 1H sales and profit targets by wide margins. Dividend maintained, 2-for-1 split planned and buyback under consideration.
• Capex has been cut, reflecting lower growth expectations. R&D also. Inventory adjustments will eventually be completed, but Chinese competiton will remain a problem.
• The share price has dropped 30% in the past year and 10.5% since May 8, putting the shares on 27 times EPS guidance. Still not cheap, but getting there.

• There is Japan Post Bank (7182 JP) buyback risk that might cause Japan Post Holdings (6178 JP)/JPB unwinds; though probably a H2 risk.
• Great Eastern Holdings (GE SP) has consistently traded through OCBC (OCBC SP)‘s Offer terms. Someone appears to be accumulating a stake to block an Exit/Delisting Offer, and force a bump.
• L’Occitane (973 HK)‘s scrip pre-condition has been satisfied. But still the Offeror prevaricates. 

Dentsu’s Q1 results indicate a slow start to the year, with organic net revenue down by 3.7%. However, prospects are improving, buoyed by new business wins and weighted to H2, which leave full year expectations (and our forecasts) unchanged. The One dentsu initiative, bringing together skill sets in consulting, technology, media and creative, is supporting improved pitch win rates, and giving greater coherence and consistency to the group product and service offering. We expect this to be a central element of the new management medium-term strategy, set to be unveiled during H2. The rating remains at a substantial discount to global peers, which we anticipate will narrow as evidence of renewed growth builds.

• Japan Post Bank (7182 JP) saw its net profit surge from non-recurring gains, which was from the sale of stocks. 
• The company’s cost of funds worsened more than the improvement in its yields, and we believe this remains an issue related to hedging costs.
• Unrealized gains on foreign bonds remains significantly higher now than a year ago and this may again be the driver for earnings, but still with very low ROA.

• The Nikkei 225 INDEX has been rallying a bit last week and closed the week up. A rebound from the previous downtrend is underway.
• A temporary bottom may have been established in May, it is not clear if the index is about to go lower or higher, but our pattern model readings suggests higher.
• If the index continues to rally, the first major resistance area will be around 40k.

• Few companies have disclosed their cost of capital, so TSE provided specific indicators for this purpose. On the other hand, allergies to cost of capital disclosure are persistent in companies.
• It is a concern that many companies still have more fixed remuneration than variable remuneration for compensation incentives, which are a mechanism for achieving capital profitability goals like ROE.
• Engagement with overseas investors can be effective, but there are challenges, such as the existence of passive funds and companies with small market capitalizations that are not eligible for investment.

• OHBA (hereafter referred to as “the Company”) has achieved 12 consecutive years of operating profit growth through FY2023/5, and is on track to stretch this streak to 13 consecutive years in FY2024/5, having posted a 20.1% YoY increase in operating profit for cumulative 3Q FY2024/5.
• The Company has secured orders for a number of landmark construction projects from both the public and private sectors, including basic policy formulation and master plan preparation work associated with the optimization of Japan Self-Defense Force facilities, Kumamoto JASM/TSMC (Taiwan Semiconductor Manufacturing Company) Phase 1 plant, Sony Semiconductor Solutions Corporation plant, among others.
• It has been able to capitalize on the robust macro environment, partly supported by the continued rise in technician prices for design work outsourcing

• The Sep 2024 Nikkei 225 Review data set is mostly done, and one can interpolate results relatively accurately. It still leaves us with one ADD, one DELETE, and capping fun.
• Recently, Yanai-san sold more Fast Retailing (9983 JP). There is more Real World Float- more active holders own more stock (which may mean less interest to buy later).
• There is a dark horse candidate which is on investor radar for other reasons. It would not be out of the question, but the precedent is old, and different.

• Two and a half years ago, H2O Retailing (8242 JP) the 10.9% owner, arranged to merge its own units into Kansai Super Market (9919 JP) to get control. OK Corp complained.
• OK Corp offered to double the price in a Tender Offer but wouldn’t go hostile. KSM/KFM said no go. Shares popped to ¥2,000+ then when the deal failed, they fell. 
• H₂O ended up with 58% (64.9% of votes now). The ultimate goal was to swallow it paying zero premium. On 15 May, it announced the merger to do just that. 

• Profit continues to expand at Mitsui E&S after its transition to a holding company, now reporting over 400% profit growth for 9 months YTD.
• The company is doing well to keep its operating costs down, with an improving funding structure and balance, as its revenue grows more than COGs.
• We wonder if there will be more revisions upward to profit, with new initiatives and with a more proven recent track record.

• Eisai Co Ltd (4523 JP) has guided for FY25 Leqembi revenue of ¥56.5B (~$366M), with ¥43.5B from U.S., and ¥10.0B from Japan. In FY24, Leqembi reported worldwide revenue of ¥4.2B.
• Leqembi is expected to grow significantly due to increase in prescriptions following the progress in the development of AD diagnosis and treatment pathways in the U.S. and Japan.
• The current rally can be short lived, as the competitor drug is expected to get FDA approval in 3Q24.

• Nissin Corp (TYO 9066) bought back 23.6% of their outstanding shares in a single day on May 10th and also doubled their dividend.
• The result? The stock went up about 39% (up 72% YTD).
• I already had a full sized position in Nissin Corp and despite being up big on it I added to my position at ¥4,265.

• Tokyo Communications Group’s core businesses currently include its Media business, where it plans and develops free game apps for smartphones and uses a portion of the app’s screen space to generate advertising revenue, and its Platform business, where it operates a consultation service based on a pay-as-you-go model.
• The company also functions as an investment company with the aim of achieving company-wide growth while diversifying risks by allocating the cash flow generated by these core businesses into various promising digital businesses.

• The company’s main business at the time of its founding consisted of developing and operating free game apps for smartphones.

• HeartCore Enterprises is an established software development and consulting company based in Tokyo, Japan and operates in five core offerings and solutions.
• These include 1) Content Management in which the core product is HeartCore CMS, 2) Digital Transformation which includes Controlio, myInvenio, Apromore and HeartCore Robo, 3) GO IPO, a consulting service that helps Japanese companies prepare for a U.S. Nasdaq public listing, 4) Sigmaways, that specializes in infrastructure modernization, and 5) other revenues.
• We believe the company is poised for strong growth due to its entry in the U.S. market and solid results from the Go IPO offering.

• According to public news, China is considering asking local governments to purchase significant amount of unsold homes in the country. 
• Nippon Paint Holdings (4612 JP) is a good proxy for exposure to China property with downside protection.
• China made up 40% of Nippon Paint’s operating profit (1Q24 numbers).  Nippon Paint is the absolute leader in decorative paint in China, with 25% market share in 2023 (TUC).

• Today, Japan Post Holdings (6178 JP) announced results (and Mar25 guidance) as did its subsidiaries Japan Post Insurance (7181 JP) and Japan Post Bank (7182 JP). 
• There are a number of interesting things in all the announcements/presentations but the most interesting one for JPH holders is a big buyback. Another one.
• The company has announced a ¥350bn buyback. It is larger than last year’s (¥300bn) buyback and has another important difference.

• Today, S Line Co Ltd (9078 JP) announced its CEO would conduct a Tender Offer MBO to buy out the ¥50bn-target revenue logistics company, at 0.6x book. 
• The company announced results with revenues up. But withdrew its existing MTMP which said revenues would be up 10% from here to March 2025 and ROE would be higher.
• This is the wrong price. It should engender some upset, but active investors own almost nothing it seems. 

• In FY25, Nihon Kohden (6849 JP) guided for domestic revenue of ¥147B, up 3% YoY. The demand for patient monitors and treatment equipment is expected to remain steady.
• Nihon Kohden expects North America business to report a revenue CAGR of 11% (fastest among all the other regions) during FY24–27, outpacing mid-single-digit growth of the market.
• The company announced ¥10B buyback plan to repurchase up to 6M shares, representing 3.57% of total number of issued shares from August 5, 2024, to March 31, 2025.

• Recruit Holdings (6098 JP) reported 4Q and full-year FY03/2024 results today. Earnings beat own guidance as well as consensus estimates.
• Weakening labour markets have negatively impacted all business segments and new pricing model for Indeed has not really been successful.
• Recruit expects a recovery in 2HFY03/2025, but at the rate at which job openings are going down, we remain cautious.

• Code of Corporate Conduct lacks explanation of the role to be played by a listed company and the background. Consequently, there’re cases where the same companies have repeatedly committed misconduct.
• For companies that are good at pretending that they are trying, without any substance to their corporate governance, making the provisions of Corporate Governance Code mandatory effort won’t be effective.
• TSE’s request seems to be an effort obligation. It is good that the substance of the company’s improvement plan, which only made an effort to improve, will be improved.

• Yutori , the Zozo-controlled online fashion mall, is diversifying into cosmetics and other items, with wholesale distribution to chain stores as well as sales through its own mall.
• The fledgling online mall continues to grow fast, with sales up 74% so far this year.
• It is in essence Zozo 20 years ago given its focus on the teen and youth market but with the difference in that it has Zozo’s experience and advice.

• There were many sceptics when Don Quijote bought Uny given that no other GMS retailer was performing well.
• Today, Uny is finding new relevance thanks to the adoption of merchandising and marketing from Don Quijote.
• But the real secret ingredient is, as in Donki stores, giving staff the freedom and responsibility they always wanted – including profitability of each store.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Indofood CBP Sukses
• Pakuwon Jati
• Rakuten

• In March, Modec Inc (6269 JP) announced the TSE had said Modec at 29.3% (end-Dec-23) was below the required 35% tradable shares level required for continued listing on TSE Prime. 
• It announced a “Basic Plan” to comply with the criteria which involved convincing one of the three major corporate holders to sell some. They needed to sell about 6%.
• Mitsui E&S has announced it will sell 32%, and 37% including greenshoe. This is overdoing it in a huge way. Mitsui E&S is getting out. This is a re-IPO.

• Modec Inc (6269 JP) has announced a secondary offering of up to 25.2 million shares (including overallotment). The largest shareholder, Mitsui E&S Holdings (7003 JP), is the seller.
• MODEC’s goal with the secondary offering is to reconfigure its shareholder mix to have a diverse base of shareholders who support its long-term strategies and a better tradable share ratio.
• Looking at recent large Japanese placements is instructive for understanding the potential offer price. The pricing date will likely fall between 22 and 28 May (likely 22 May).

• Last year with earnings, Ushio Inc (6925 JP) announced a HUUUGE buyback discussed in  HUUUGE Ushio (6925) Buyback. The headline was 17% of shares out. They ended up buying 13.2%. 
• Last year the stock popped on the news. Then shares went sideways for months. Then they went up on stable (bad) earnings guidance in H2. Today they beat Q3-updated guidance.
• But today they announced a “new growth strategy” to 2030, and guided to a SHARP (-60%) drop in OP and NP to March 2025, and announced a HUUUGE Buyback. Again.

• There are 15 stocks in Japan that will be sold by passive trackers at the close on 31 May.
• Short interest has been increasing in these stocks over the last few months and there will be covering on implementation date.
• Cumulative excess volume on all stocks has risen in the last couple of months though the pace of the increase has varied.

• Mitsui E&S Holdings (7003 JP) is looking to raise approximately US$451m through a secondary follow-on offering, via selling approximately 21.9m shares (32% of TSO) of Modec Inc (6269 JP)’s stock. 
• The deal is a large one to digest at 81 days of three month ADV. 
• In this note, we will talk about the placement and run the deal through our ECM framework.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Lippo Karawaci
• Softbank Group

• An uplift in China orders – Q1 FY12/24 results saw a continued decline in sales by 7.4% YoY and 9.3% QoQ.
• However, the core Machine Tools segment saw flat sales QoQ, and order visibility improved with China orders rising by 39.4% QoQ albeit from a low base.
• Cost reduction efforts have commenced and are set to accelerate into Q2 FY12/24 which should improve the scope for profitability, although ultimately this will be sales volume dependent. 

• Today SMO and CRO operator I’Rom Group (2372 JP) announced an MBO where Blackstone would be the sponsor.
• From outward appearances, it would seem to be an estate management exercise. It’s not particularly rich as a bid, but it isn’t awful. 
• I expect this gets done as Mori-san and family and friends appear to have 58% going in. Expected to start in June.

• Pre-Open on February 1 2024, Aozora Bank Ltd (8304 JP) announced writedowns and a forecast revision, lowering full-year net profit expectations from +¥24bn to -¥28bn.
• Shares which had been trading relatively richly (and heavily shorted) fell sharply over the following days, then noted activist Murakami-san started buying in. Then he bought more and went silent.
• Today, Aozora reported full-year earnings – much worse than expected and Mar25 guidance lower than already low Street estimates. And they are selling 15% stake to Daiwa Securities Group. Oof!

• Toppan Printing (7911 JP) established a new Medium-Term Management Plan with targets in May 2023. 8% ROE, PBR >1.0x. More DX business. More management modernisation. More ESG. Mooooarrrrr!
• They also promised capital measures: ¥100bn of buybacks over three years. Total shareholder return of 50%+ over three years. More progress in selling down cross-holdings. 
• Today the company reported better-than expected full-year revenues, OP, and Net Profit, added more to the buybacks, and shortened the buyback period to two years. Details matter.

• EssilorLuxottica has always played a long game in Japan but since 2018 the eyewear giant has been investing in local production and a growing store network.
• As reported by Mark Chadwick,Travis Lundy and myself, Luxottica has a stake in Paris Miki Holdings (7455 JP) and the Japanese firm is a key strategic interest for EssilorLuxottica.
• That Luxottica is increasing its investments in Japan retail through acquisition is evidenced by its takeover of Washin Optical, a 70-store eyewear chain, last month.

• Arm’s valuation has driven the group NAV to a new high at fiscal year-end in March; with Arm accounting for 45% of group equity value, NAV downside risk is high
• JPY depreciation has been NAV supportive, but this could reverse; SVF2 remains very exposed to financing costs, with 87% of its equity value in private companies
• Softbank shares trade at a 57% discount to the estimated NAV; yet the downside risks to Arm’s valuation, along with SVF2 valuation headwinds, should keep the discount wide

• Shiseido Company (4911 JP) reported 1Q24 results last Friday.  Core operating profit declined less than expected at -10% yoy, and exceeded the management’s target. 
• The beat was driven by robust growth in Japan, Americas, and EMEA, while China steadily recovered.  Overall sales growth was 4% yoy in the quarter. 
• As a reminder, the investment thesis for Shiseido is twofold:  a recovering China mainly due to one-off concerns (nuclear wastewater), and a margin recovery story in Japan. 

• I’Rom Group (2372 JP) recommended a Blackstone (BX US)-sponsored pre-conditional MBO at JPY2,800, a 49.5% premium to the undisturbed price. 
• Approvals under the competition laws of Japan and Australia are a precondition. The tender offer is expected to start in mid-June.
• The offer is attractive and requires a 37% minority acceptance rate. While the timing of regulatory approvals is a risk, the transaction is a done deal.

• Olympus Corp (7733 JP) has announced a buyback plan for up to 60M shares, representing 5.15% of outstanding shares, by spending ¥100B from May 13 to December 31, 2024.
• The company has posted mixed FY24 results, with revenue beating and operating and net profits missing guidance. Olympus has guided for just 9% revenue growth for FY25.
• Overall business outlook of the company seems to be bleak. With limited upside potential expected, it will be wise to tender shares through the company’s buyback offer.

• Although many institutional investors’ voting criteria apply the rule of “support the proposed appointment of top management director if one female director is nominated,” more in-depth examination should be conducted.
• Agenda based on TSE’s request isn’t easy to understand for all investors, and the current voting guidelines for domestic institutional investors make it unlikely that they will vote for it.
• The ISS ROE criteria will be raised next year, and companies may not raise ROE with bold shareholder returns until the voting guidelines for domestic institutional investors are also raised.

• FY Mar-24 results were ahead of guidance, but management’s FY Mar-25 forecast has sales flat and profits down in the second half.
• The shares have dropped back 24% from their all-time high, bringing the forward P/E ratio down to 22X.
• China and foundry remain strong while North America and memory pick up. Guidance is probably conservative. Buy into the weakness.