Japan

• In May 2023, KDDI Corp (9433 JP) announced a ¥300bn buyback program, did nothing for two months, then announced a Tender Offer Buyback to buy shares from Toyota. 
• Toyota had increased its stake years before, then KDDI bought back shares from others, so Toyota was backing its ownership down. I discussed the relationships, history, etc, here.
• This year, KDDI announced Friday with earnings that is buying back another large stake from Toyota. 

• Sumitomo Chemical issued new guidance in-line for 3/24 and xx% ahead of consensus for 3/25 EBIT, yet, the shares promptly declined by 10%.
• Traders were probably spooked by the company’s booking of ¥340bn in impairments that was ¥200bn more than published consensus, but we argue that this was more than already priced in.
• The only reasonable explanation for the reaction is that the market doesn’t believe the new guidance for 3/25. This could prove to be a huge mistake.

• MHI was sold off last week as FY Mar-24 operating profit fell short of guidance and management guided for a decline in new orders this fiscal year.
• Orders momentum has peaked. Sales and profits will follow. But the latter are still rising and guidance could once again be conservative.
• Consolidation of the share price is likely to continue until orders and profit trends are confirmed.

• 1H Results: On April 12, 2024, Paycloud Holdings Inc. announced its 2Q FY2024/8 earnings, its first earnings announcement since becoming a holding company and changing its name on March 1, 2024.
• In 1H FY2024/8, the company reported net sales of ¥1,990 mn, adjusted EBITDA of ¥226 mn, and operating profit of ¥86 mn. It had an irregular 5-month accounting period in 1Q FY2023/8 that included the July-August 2022 earnings following a change in the accounting period of the former Valuedesign Inc., which was merged with the company.
• As a result, the company’s earnings summary for 1H FY2024/8 show sales being down 12% YoY, adjusted EBITDA up 2% YoY, and operating profit up 237% YoY.

• KKR’s Offer for Alps Logistics (9055 JP) is a knock-out price. HUGE MINORITY WIN. This trades a little wide because the “gap risk” is so large, but it’s still safe.
• It’s reasonable to expect the listing of various components of L’Occitane (973 HK) other than in HK, would (should) be hugely accretive; for those investors who can (or may) participate.
• Hankook Tire & Technology (161390 KS) seeks a controlling stake in Hanon Systems (018880 KS).

• Most large companies initially estimate sales and profits conservatively, and CapEx, which is often planned more than a year in advance, isn’t often above plan.
• Companies have a cautious earnings outlook, but the market consensus still expects profit growth in FY2024. CapEx growth in the BOJ Tankan is expected to be slightly higher than profits.
• Assuming an 8.5% increase in CapEx for large manufacturing companies and a low single-digit growth in the recurring profit outlook, the level of cash on hand is unlikely to decrease.

• Yesterday after the close, Nissin Corp (9066 JP) announced earnings (down vs last year), guidance (back up partway to last year), and a sale of securities to raise ¥6+bn.
• Nissin also announced an employee share incentive plan (¥900mm) and an adjustment to its MTMP from Apr24 to Mar27. Much lower revenues. Same OP. Higher net. Higher Div Payout ratio.
• They also announced a really big buyback which should be done by the time people read this. It is really big.

• Nihon Housing (4781 JP) is a business which manages real estate for owners (office, apartment management, janitorial, cleaning, facilities management, security, agency, sub-leasing package systems, etc). 
• The company has operated in Tokyo for 60+yrs, and they are finally just going to take what has always been a tight register private. Foreigners own 0.05%. Index owns nothing.
• This is basically a completely done deal. It will trade tight, and illiquidly.

• Bloomberg reports that Teijin Ltd (3401 JP) wants to sell its 55% stake in Infocom Corp (4348 JP). The rumoured bidders are Sony Corp (6758 JP), Blackstone and KKR. 
• Based on precedents, the offer structure will likely be structured such that Teijin provides an irrevocable NOT to accept but vote in favour of share consolidation at the EGM.
• Bloomberg suggests that Infocom could be valued at JPY200 billion. If this refers to market cap, the tender offer is JPY3,472, a 16.5% premium to the last close.

• In late February, a specialty media outlet noted Alps Logistics (9055 JP) was up for sale. I missed that. Yesterday pre-close, a headline crossed the wires. A deal was imminent.
• Nikkei overnight said “¥150bn+ market cap”. I thought KKR might slightly overpay the Hitachi Transport System (9086 JP) multiple paid. That meant +13% today was full-ish. I was wrong.
• KKR is paying ¥5,774 to minorities, and about ¥4,084-ish to the parent, who is reinvesting at ¥5,774. This is a total knock-out price paid. HUGE MINORITY WIN.

• Alps Logistics (9055 JP) recommended a pre-conditional tender offer from a KKR & Co (KKR US) subsidiary at JPY5,774, 32.7% and 69.8% premium to the last close and undisturbed price, respectively. 
• The pre-condition is approvals under competition laws of Japan, China, the EU, South Korea and Vietnam. The tender offer is expected to start in mid-August.
• The offer represents an all-time high and is a knockout bid. While the timing of regulatory approvals is a risk, the transaction is a done deal. 

• 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.
• Dozens of companies have been able to meet the key Section Transfer requirements on paper for several months but there have been no TOPIX Inclusions announcements in 2024 so far. 
• However, there are some pre-event candidates we believe are worth monitoring as they have previously confirmed their desire to move to the Prime Market.

• FY2023 Success: Daikin achieved record-high sales and profit, driven by FX impacts. Despite challenges like reduced demand, the Air Conditioning business expanded in key markets.
• Ambitious Targets: FY3/25 targets include surpassing previous financial records, despite continued sluggish demand.
• Cautious Outlook: While optimistic about market share gains, reservations persist, particularly regarding heat pumps. Stock performance remains steady, trading in line with historical averages.

• Committing to raising production capacity –Shofu announced its fifth medium-term plan, covering the four years from FY3/25 to FY3/28.
• The core message is that the company has competitive products and high demand visibility in overseas markets, and is reaching the point of attaining annual sales volume of ¥50bn.
• The plan will involve significant capital allocation to raise production capacity and other business investments to meet its goals. zed.

• News: The Nikkei on April 25th reported, “A dark cloud is hovering over the future of the electric car (EV) market.
• The low prices of Chinese EV manufacturers, backed by Chinese government subsidies, are adversely affecting the performance of related companies such as motor giant Nidec Corporation (TSE Prime: 6594).
• The spread of low-cost EVs will substantially change the structure of the industry, and investors are beginning to look out for companies that will benefit from the commoditization of EVs.

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.

• China Oil And Gas
• Lippo Karawaci
• SJM Holdings
• Softbank Group

• Profit margins boosted by cuts in personnel, R&D, CapEx, and corporate tax rates. Much of the improved free cash flow went onto the balance sheet instead of being invested.
• OP Margin’s sluggish growth indicates that the cost-cutting model is no longer working. Investments are needed to create products with higher gross margins.
• While the limitations of the cost-cutting model can be seen, ROE, which indicates the achievement of the management goal of increasing medium-to-long-term shareholder returns, is sluggish in many companies.

• There was a news article I missed in late February saying Alps Alpine (6770 JP), parent of Alps Logistics (9055 JP) was in the process of selling the logistics unit.
• A deal made sense for a strategic given the upcoming “2024 Problem”. Pre-close, headlines blared, the stock popped 12%, now we’re at double the end-February price.
• Late in the evening,Alps Logistics said it had received a bid from Logisteed but nothing had been decided. This morning we have a few more details, but nothing concrete

• Last May, Nippon Yusen Kk (9101 JP) announced buybacks of ¥200bn over 2 years. In August, they changed it to say  ¥200bn in the next nine months.
• That helped support the stock through early March. It was big, and a decent percentage of ADV. Today, they announced earnings and guidance and another ¥100bn buyback through April 2025.
• Earnings were OK. Guidance is a little low vs the Street. The stock popped 5% from where it was trading. Lower impact vs 2023. More cross-holder overhang consideration. 

• MHI’s stock fell 7% following the announcement of results. Guidance for FY3/25 missed analyst expectations
• Even so, MHI remains a key beneficiary of the global shift to clean energy and national policies aimed at bolstering national security 
• We remain bullish. The stock has performed well this year and but 13x EV/EBIT seems reasonable given the structural drivers

• The review period for the Nikkei 225 (NKY INDEX) September rebalance ends in July. There could be three changes at the rebalance with sector balance in focus for the additions.
• Depending on the changes, passive trackers will need to buy between 5-16x ADV (10.1%-24% of real float) on the inclusions and sell between 4-42x ADV on the deletions.
• Fast Retailing (9983 JP) will be capped to 10% of the index weight while Tokyo Electron (8035 JP) is also close to the 10% cap.

• Kawasaki Kisen Kaisha (9107 JP) today announced earnings. Ocean Network Express earnings were out earlier and beyond that, Consolidated Revs beat, OP faltered, but NP was spot on guidance.
• Guidance for the year to March 2025 is well ahead of consensus on revenue, slightly ahead on OP, and just a wee bit ahead on NP. 
• But the company raised its 5yr MTMP Shareholder Return from ¥500bn to ¥700bn and set a new ¥100bn (5.5%) buyback to be executed in the next 3 months.

• Today, after the close, Chilled & Frozen Logistics Holdings (9099 JP) released a required (by the FIEA) Target Opinion Statement saying “Opinion Withheld.”
• C&F notes that it had received 9 possible counter-proposals, offered due dili to a certain extent, and by May 1, had 4 binding offers. 
• There are interesting competitive dynamics at play here, but cross-holding concentration matters. The question is… How much is enough?

• Operating profit: FY3/24 OP was 529 billion yen (+4.9% YoY) vs analyst estimates of 537 billion (1.5% miss)
• FY3/25 Operating guidance is 400 billion yen, significantly below analyst expectations of 480 billions (-16% miss).
• The initial market reaction may be negative, we would use that as an opportunity to buy into the stock for the cyclical upturn in FY3/26.

• The reason why the approval for the shareholder proposal on profit appropriation exceeded 40% is that the proposal was easy to understand and easy to get approval from other shareholders.
• Although domestic institutional investors don’t currently vote against a low ROE when it comes to improvement measures, they may take a more aggressive stance if ISS raises its ROE criteria.
• The trend of top management being reappointed even with continued low ROE is likely to continue for a while longer, but the time frame is definitely getting smaller.

• Dic Corp is a chemical company with a top global market share in products such as printing ink, organic pigments, and PPS compounds.
• DIC recorded FY12/23 sales of JPY1,038.7bn, operating profit of JPY17.9bn, recurring profit of JPY9.2bn, and net loss attributable to owners of the parent of JPY39.9bn.
• On February 13, 2024, DIC Corporation announced revisions to its long-term management targets in DIC Vision 2030.

• Seven & I’s plans to consolidate its supermarket operations and list in 2027 remain speculative but the timing shows that management was swayed more by the founder’s death than activists.
• It will need to bring Ito-Yokado (IY) back to profit first and, although it wants to keep at least a 15% stake, there is the strong possibility of a sale.
• What matters more is not IY stores but the new SIP format. With CVS saturated, SIP is only way to grow within Japan but this depends on Ito-Yokado supply chains.

• The company’s management fees now cover the operating costs after many years of losses
• Recent fund raising has surpassed expectations for its latest VC fund
• The company’s steps towards better capital allocation are trending in the right direction

• Komatsu’s operating profits for FY3/24 of Y607 billion (+24% YoY) surpassed estimates on strong U.S. equipment sales
• Komatsu guides for FY3/25 operating profits of ¥557 billion (-8.3% YoY), assuming ¥140/US$
• We believe that the market remains too focused on the near-term growth slowdown, while we believe that Komatsu is attractively priced at under 10x EV/EBIT

• When this deal was announced, it was light. But the timing, JSR influence, large-ish float, ensured FUD would make this trade wide. It traded wider.
• 15wks ago, Shinko had much-underperformed peer Ibiden, meaning downside gap risk from undisturbed was negative as spreads were wide. I reco’d a buy. Then 8wks ago, recommended taking profits.
• Shinko had outperformed Ibiden, gross spreads had narrowed 5+% on JSR approval. Spreads are now 3.6% wider than at narrowest, but gap risk has widened as Shinko outperforms, Ibiden.

• Macro trends for restaurant chains are all negative: Food prices rising faster than restaurant unit prices, part-time wages rising faster than full-time.
• Toridoll’s same store sales resuming long-term underperformance trend that was broken only briefly during the pandemic.
• Stock trades at 3x the market average PBR, despite merely average RoE. Technical support has broken down.

• In addition to too much cash on hand to begin with, ROE is expected to continue to grow at a sluggish pace, as shareholder returns are less than profit growth.
• Given that we expect more companies to have stock price, P/B, and ROE on the agenda for the June AGM, more companies are expected to announce increases in shareholder returns.
• However, ROE is unlikely to increase significantly. Shareholder returns are certainly too small, but a more serious problem is the inability to find growth investment opportunities.

• Tax-Loss Selling‘s a subject of interest in Australia. Retail investors will take gains on stocks which run up in price, or get taken over, then look for losses to offset.
• Investors are caught out as the Aussie government “approves” Hanwha Ocean (042660 KS) buyng Austal Ltd (ASB AU). There is evidently a lot more going on in the background. 
• West Japan Railway Co (9021 JP) announces a biggish buyback. One could buy dips, but one should probably not chase. For that, suggest this acts as a range trade.

• 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 are weeks ahead of the TSE and we have all the links.
• We created a tool to name everyone, show their reports, provide links to every document, and now a new tool. Put in a name, see the difference between the Old/New Reports.

• Criteria for IPOs aren’t a major issue. TSE is concerned that many companies will be in jeopardy of being delisted if the criteria for maintaining listing are raised.
• TSE will likely make “request” to Growth Market listed companies to increase their market capitalization if the criteria for maintaining listing are not raised.
• From 2025, delisting and subsequent re-listing through M&A and MBOs is expected to increase, which will lead to more investment opportunities.