Japan

• Cancer is the most common cause of death in Japan, and at 282.9 cases per 100 000 people, it ranks at the upper end of the global recorded range.
• In 2020, Daiichi Sankyo embarked on transforming to a leading oncology specialist in terms of new drug development.
• Daiichi Sankyo’s ADC pipeline comprises of six higher level drugs with a number of indications (sub-categories). This pipeline is part of a universe of 2499 oncology drugs in development.

• The share price has bounced back on strong 3Q orders and long-term optimism, but weak 4Q guidance calls the growth trajectory into question.
• Guidance, which has sales dropping to about half what they were a year earlier, is based on the expected timing of customer acceptance of delivered equipment. It could be conservative.
• At 75X EPS guidance for FY Jun-24, a rate of growth not visible in current trends has already been discounted. Current orders should translate into sales in 2026.

• Sumitomo Pharma (4506 JP) cut FY24 revenue guidance by 1% to ¥314.6B (-43% YoY) and raised operating loss guidance by ¥199B to ¥355B. Impairment loss of ¥180B negatively impacted bottomline.
• Sumitomo has set FY25 revenue guidance at ¥338B (down 27% from MTBP 2027) and core operating profit at ¥1B (down 98% from MTBP 2027). The company suspended FY25 dividend.
• The company will announce FY25 guidance for operating and net profits during the announcement of FY24 result, scheduled for May 14, 2024.

• Yesterday, West Japan Railway Co (9021 JP) announced FY23 earnings, a higher dividend, an update to the Medium-Term Management Plan (p10~), and a Buyback.
• Short & Sweet:  Revenues were +17.2%yoy, OP +114.1%, NP +1.6%. OPM was 11.0% and ROE 9.2% (both best since FY18). Guidance is Revenue up, OP down, NP tiny up.
• The new FY25 (Mar26) OP guide in the MTMP is the old Mar28 target (mostly inbound tourism-driven). The Buyback is biggish. It is worth looking at the details. 

• Chilled & Frozen Logistics Holdings (9099 JP) had been sending out questions, and trying to get AZ-Com Maruwa Holdings (9090 JP) to delay the start until at least late-May.
• AZ-Com Maruwa answered questions (first and second set) and on the 24th, C&F asked AZ-Com to extend. They did not extend. AZ-Com announced the Tender Offer at ¥3,000 today.
• C&F responded today saying the TOB is launched without C&F Board approval. Then they said some other things that might be disclosed when C&F’s Board presents its Target Opinion.

• AZ-Com Maruwa Holdings (9090 JP) has satisfied the precondition for its hostile Chilled & Frozen Logistics Holdings (9099 JP) JPY3,000 offer. The offer closes on 17 June (31 business days).
• AZ-COM Maruwa has called the Board’s bluff by providing sufficient time (extending the offer period from 20 to 31 business days) for a white knight to lob a competing bidder.
• While a bump is probable, the shares already factor in a significant bumpitrage premium. A potential bump has a good chance of being lower than the last close.

• Many companies have low liquidity since listing, with nearly half of companies having major shareholders with over 20% ownership. Raising listing criteria should considered to improve quality of the market.
• TSE seems to raise the listing criteria for Growth Market in 2025, when the transitional measures expire, but for Prime Market, TSE is likely to respond with a “request.”
• Although TSE’s “request” may be the catalyst for increasing MBOs and dissolution of parent-subsidiary listings, engagement with overseas investors over years to resolve management issues was foundation of this trend.

• Peptidream Inc (4587 JP) has obtained first-in-human imaging studies approval for its first in-house peptide radiopharmaceutical therapeutic program, PD-32766 targeting patients with clear cell renal cell carcinoma.
• Novartis (NOVN SW) has expanded peptide discovery collaboration with Peptidream. The expanded partnership could bring up to $2.7B in milestone payments plus royalties to Peptidream.
• In 2023, Peptidream reported revenue of ¥29B, up 7% YoY, with radiopharmaceutical revenue growing 40% YoY to ¥16B. For 2024, the company guided for revenue of ¥35B, up 22% YoY.  

• The activist investor is back and has demanded further action to unlock value from Keisei Electric Railway Co (9009 JP)  management.
• Operational numbers are still healthy, but growth is not as large due to the high base.
• Immediate pressure to divest Oriental Land thus short Oriental Land (4661 JP)  and long Keisei.

• Sumitomo issued new guidance for the year to 3/25 that was 40% higher than consensus estimates, but the stock cratered almost 5%.
• We were able to think of at least 6 explanations for this odd reaction – all of them irrational.  
• A reasonable person listening to the call should have been pleased by almost all that was new information. 

• On April 24, Shin-Etsu (4063) posted its fifth consecutive OP decline and guided for a sixth, but the stock has outperformed Topix by 22% in the past 12 months. 
• OP for the year ended March 2024 was JPY141.5bn, vs. consensus estimates of JPY168.9bn. This was the fifth consecutive miss, and the fourth of more than 10%. 
• The Chinese economy is killing the company’s core core Polyvinyl Chloride Resins business and seemingly interminable inventory issues are holding back a recovery in the semiconductor materials business. 

• Ono Pharmaceutical (4528 JP) is acquiring Deciphera Pharmaceuticals (DCPH US) for $25.60/share in cash through a tender offer. The total equity value of the acquisition is approximately $2.4B.
• Ono is expected to reap the benefit of Deciphera acquisition earliest from FY27. In the short-run, the company’s major problem of loss of revenue will not be addressed.
• Ono needs to stretch its balance sheet to fund Deciphera acquisition. The acquisition will be earnings dilutive for Ono. Pricey valuation of the deal is another deterrent.

• On 28 Feb, the Nikkei reported (an article I missed) Mitsubishi Corp (8058 JP) would seek to unload its 35% stake in Kfc Holdings Japan (9873 JP) 
• The stock popped, then continued to rise further. After the close Friday, the Nikkei reported MitCorp was close to a deal with Carlyle. A deal is apparently expected imminently.
• I expect this could be a “Split Price Deal” (like Hitachi Transport and Pasona).

• The Nikkei reports that Carlyle is in the final stages of buying Mitsubishi Corp (8058 JP)’s 35% stake in Kfc Holdings Japan (9873 JP), which will result in a tender offer. 
• The structure will likely be similar to the KDDI Corp (9433 JP)/ Lawson Inc (2651 JP) tender, where MitCorp provides an irrevocable NOT to accept but vote for share consolidation.
• The shares have been up 33.6% since Nikkei flagged the sale on 28 February. KFC Japan will trade in line with peers’ multiples at a JPY5,700 offer.  

• Mimasu Semiconductor Industry (8155 JP) recommended a pre-conditional tender offer from Shin Etsu Chemical (4063 JP) at JPY3,700, a 14.4% and 35.4% premium to the last close and undisturbed price, respectively. 
• The pre-condition, which cannot be waived, is approval under the competition laws of Japan and Taiwan. The tender offer is expected to start in late July.
• While the offer is below the mid-point of the IFA DCF valuation range and the requested price, it is 7.7% higher than the all-time high of JPY3,435. This is done. 

• Japanese instant noodle manufacturer Toyo Suisan Kaisha (2875 JP) has become the newest target for activist investors in Japan.
• Nihon Global Growth Partners Management, Inc argues that Toyo Suisan’s investments are overly concentrated in its legacy businesses, despite these ventures yielding low returns.
• Therefore, they are recommending that Toyo Suisan exit its legacy businesses, increase the payout ratio to 40%, and use some of its excess cash for a share buyback of ¥20bn.

• JPX-Nikkei 400 is composed of common stocks listed on the Tokyo Stock Exchange. It is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents.
• A periodic review is conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year. We look at the rankings of the potential ADDs/DELs every month.
• Below is a look at potential ADDs/DELs for the JPX-Nikkei 400 index rebal event to come in August 2024 based on trading data as of end-April 2024.

• A solution for Keisei, similar to case of parent-subsidiary listing, is cashing OLC shares to raise profitability and growth potential of its business, to eliminate the distortion in market capitalization.
• There is a corporate governance issue in that OLC is accepting board members from Keisei, which has below 20% equity and does not clearly explain the synergies of the business.
• This can be viewed as part of dissolving cross-shareholdings where the company wants to obtain voting advantage without business synergies and cannot find opportunities to spend the cash it sells.

• M3 Inc (2413 JP) reported 4Q and Full-year FY03/2024 results. Earnings missed both guidance as well as consensus due to slowdown in Medical Platform and Overseas businesses.
• Medical Platform’s earnings declined further in 4Q with spending cuts by pharma companies, and it seems that the segment’s earnings will further decline going forward.
• M3’s share price is down 18% YTD, and we do not see many catalysts to drive a rally in the company’s share price.

• Positioned for sustained growth – Q1-4 FY3/24 results were in line with guidance, with the company generating consistent and sustainable double-digit growth for sales and earnings demonstrating the company’s characteristics as a compounding business.
• We believe its brand, human capital, and technological innovation are competitive advantages that generate shareholder value, with free cash flow recovering YoY to ¥7.34bn from ¥3.26bn in FY3/23.
• Future capital allocation points to business investment in staff and R&D and scope for M&A to support growth and improve shareholder returns. 

• Sumitomo Chemicals aims to transform from a cyclical company with low market share in declining markets into a focused entity with high market share in secular growth markets.
• We estimate that the stock’s fair value is about 140% above the current price.
• Results meeting on April 30 should confirm that company is on track in returning to positive cash flow and selling off core assets. 

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• On the IPO front, Sichuan Baicha Baidao Industrial (2555 HK) and Mobvoi (2438 HK)‘s listing doesn’t really help the HK sentiment.
• On the placement front, Vodafone Idea (IDEA IN) managed to do well, while Krafton (259960 KS) followed  Samsung Electronics (005930 KS) footsteps.

• Roland DG Corp (6789 JP) has re-recommended Taiyo’s revised offer of JPY5,370, which is 6.7% higher than its previous JPY5,035 offer and 3.3% higher than Brother Industries (6448 JP)’s JPY5,200 offer.
• The Board articulates a compelling case on Brother’s offer dis-synergies, which will help swing some shareholder opinion towards Taiyo (irrespective of the price). 
• Brother could bump, but it would not address the issue of satisfying the condition precedent (non-completion of Taiyo offer) and securing the Board’s recommendation.  

• The Nikkei 225 (NKY INDEX) is closing the month of April in negative territory, first month down after 3 months up.
• Our seasonal model indicates that May could also close down, but the index should find strong support in the 37770-36750 price area.
• The month of May is a coin flip: the index could close up or down, caution is advised.

• The CSRC has announced five capital market cooperation measures for the Hong Kong Southbound Connect programs including  RMB dual counters and REITs. 
• Jardine Cycle & Carriage (JCNC SP)‘s current implied stub value and simple ratio are both highly elevated.
• A simple Keisei Electric Railway Co (9009 JP)model says “this doesn’t present me with enough upside to warrant it unless I am also really bullish Oriental Land (4661 JP).”

• Asset Turnover and ROA deteriorated as a result of accumulating cash on hand rather than investing. There was also insufficient R&D to create products that could have stronger pricing power.
• Conditions are ripe for investment expansion, as demand for equipment replacement is rising due to long-standing CapEx restraints, and there is no need to accumulate more cash.
• Companies are now in the stage of raising return on capital to increase reinvested cash flow from the stage of temporarily increasing earnings through price pass-through.

• Originally, Brother Industries (6448 JP) wanted to buy Roland DG Corp (6789 JP).  Roland invited others to bid, didn’t tell Brother, then said Taiyo Pacific’s ¥5,035 bid won.
• That was low. Weeks later, Brother lobbed a ¥5,200 overbid. They are going through the approvals process but it isn’t clear Brother is negotiating.
• Taiyo has extended and extended and shown up in interviews. Now it has overbid at ¥5,370.

• Fanuc was up 4.7% this past week as the market reacted to a slight uptick in orders and transparently conservative guidance.
• The book-to-bill ratio remained below 1.0 in 4Q of FY Mar-24, but was up from 3Q, which appears to have been the low point in the cycle.
• Inflation and ongoing inventory adjustments indicate a slow recovery, but demand for automation  from traditional markets and new opportunities in aerospace and other industries should support long-term growth.

• Astellas Pharma (4503 JP) reported ¥85B revenue increase in FY24 over FY23, while Fx impacted the revenue positively by ¥96B. In local currency terms, the U.S. revenue declined 5% YoY.
• FY24 operating and net profit declined 80%+, due to amortization and impairment loss of intangible assets. Astellas is changing accounting policy to smoothen core operating and net profits in FY25.
• For FY25, Astellas guided for just 3% revenue growth. Core operating profit is expected to decline 10%, while net profit is anticipated to take a bigger hit and decrease 17%.

• Last October, activist Palliser Capital launched a campaign (presentation) on well-known “stub trade” Keisei Electric Railway Co (9009 JP) with a stake of about 1.6%. 
• The proposal? Monetise a decent stake in Oriental Land (4661 JP), repurchase shares, and invest for growth. Keisei responded 6-8 weeks ago with a buyback and 1% OLC stake sale.
• I thought that was time to bail. That was it. But now, Palliser has re-engaged. Today a press release (Japanese/English) and a Letter to the Board.

• Shin Etsu Chemical (4063 JP), owner of a 44% stake in Mimasu Semiconductor Industry (8155 JP), has announced a Tender Offer to take out minorities in Mimasu. 
• This is not surprising. They bought in 19 years ago, raised to 40+% 18yrs ago, then waited. Finally, we have a deal. But it’s too cheap. 
• Shin-Etsu starts with ~45%, and crossholders and the chairman get it to 52%. Then they need a bit to get them to 67% but it should be straightforward.

• 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 May.
• The deletion from passive portfolios will lead to a liquidity event at the end of May 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.

• Yamaha releases new guidance on May 8 for its fiscal year ending March 2025. The  previous Mid-term plan for OP was ¥68bn, while the consensus is looking for just ¥40.9bn.  
• We expect ¥50bn, and think the shares are as much as 30% undervalued.
• Analysts have responded to multiple downward revisions to current year guidance, driven by collapsing Piano sales to China, but haven’t responded to cost cutting or growth in other product lines.

• CyberAgent Inc (4751 JP) reported 2QFY09/2024 results yesterday which shows further improvement across all three segments. Both 2Q revenue and OP beat consensus estimates, with OP by a huge margin.
• Newly released game titles have helped further recovery in Gaming business while Media segment reported its first-ever OP since the company began investing on AbemaTV.
• As we continue to reiterate, the worst is over for CyberAgent (CA) and we remain positive over the company’s growth prospects.

• The two groups with the highest percentages of female board members (companies with over 30% and 20%-30%) are consistent with the characteristics of companies in which overseas investors primarily invest.
• Companies with over 30% female board members show superior values in many of Board Practices and Key Actions evaluation items. This may be due to improved engagement by overseas investors.
• Companies with no female board members have the lowest values in most Corporate Governance Practices items. Therefore, percentage of female board members indicates the seriousness of improving corporate governance practices.

• Daiichi Sankyo (4568 JP) announced better-than-expected Q4FY24 result, with all key parameters exceeding guidance. Q4 revenue increased 30% YoY to ¥429B, driven by 76% YoY growth in Enhertu product sales.
• For FY25, Daiichi Sankyo guided 9% increase in revenue to ¥1,750B. Core operating profit is expected to increase 8% to ¥210B, while net profit to decline 5% to ¥190B.
• In addition to the dividend of ¥60 per share for FY25, Daiichi Sankyo has announced buyback plan of 55M shares (2.87% of issued shares) for ¥200B.

• Frontier Management (hereafter referred to as “the company”) is a consulting firm that operates in the three pillars of management consulting, M&A advisory, and business revitalization services, as well as an investment business that began in 2022.
• Founded by Mr. Shoichiro Onishi and Mr. Masahiro Matsuoka, both former employees of the Industrial Revitalization Corporation of Japan, the company has expanded its operations through proactive hiring.
• It is characterized by its lineup of specialists with diverse backgrounds and is able to solve a wide variety of management issues as a one-stop shop. Mr. Matsuoka retired as of the shareholders’ meeting held on March 27, 2024, leaving Mr. Onishi as the sole leader of the company.

• Yesterday, post-close, Bloomberg reported a headline “*SILCHESTER REPORTS NIKON STAKE; MAY SEEK CAPITAL POLICY CHANGES“
• That was exciting. It was in all caps. It was activist-ish-y. Today the stock rose 10.3% and we got another article saying it was up because of Silchester’s filing.
• Beware the Bloomberg headline. Nuance is sometimes lost. They aren’t always designed to help investors invest. Often, the main purpose is clickbait.

• Fanuc reported a -7% decline in revenue for FY3/24 and 26% decline in operating profit. 
• The market will be disappointed by guidance for a further fall on the top line and 15% decline in profits as margins hit an all time low
• The valuation of 30x EV / EBIT suggests the market was hoping for a turnaround in profits this year. That recovery has now been pushed back

• Advance Create Co., Ltd. is an independent insurance agent that sells insurance products mainly to individuals on behalf of multiple insurance companies, also undertaking follow-up services on their behalf.
• In FY09/23, the company reported revenue of JPY10.2bn, operating loss of JPY2.0bn, recurring loss of JPY2.2bn, and net loss attributable to owners of the parent of JPY1.8bn
• On February 20, 2024, Advance Create Co., Ltd. announced that it expects to receive dividends from its consolidated subsidiary, Advance Create Reinsurance Incorporated.

• TKC Corporation provides accounting and tax services to accounting firms (and client companies they advise), local governments, and others using its own computational centers, while subsidiary TLP Corp.
• In full-year FY09/23, the company reported consolidated sales of JPY71.9bn, operating profit of JPY14.3bn, recurring profit of JPY14.8bn, and net income attributable to owners of the parent of JPY10.8bn.
• TKC does not release a medium-term business plan. However, it is pursuing the following four objectives in close cooperation with TKC National Federation.

• Pasona (2168.JP) is a long investment opportunity due to its ownership of a majority stake in Benefit One (2412.JP), which is the subject of a bidding war between M3 (2413.JP) and Dai-Ichi Life (8750.JP).
• Potential bids for Benefit One could result in a significant cash windfall for Pasona, estimated at around 50% more than its current enterprise value, as well as an operating business valued at an additional 50% of its current EV.
• With the founder of Pasona being 71 years old, the bidding war could lead to a management buy-out or a substantial return of capital program for the company.

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.

• Nidec reported a solid set of quarterly numbers, except for another huge structural loss in its EV business. 
• Nidec saw sales growth and operating profitability improvements in all other segments
• We continue to think that Nidec is attractively priced at under 20x EV/ EBIT given structural growth drivers

• Until the “parent-subsidiary (affiliate) listing” is resolved, the value of parent company isn’t  usually reflected. If Keisei has some business interest in holding OLC shares, it’s responsible for explaining it.
• If OLC shares were mostly sold, there’d be nothing left for Keisei, which couldn’t find strategy for using cash, so the decision of not losing the growing affiliate isn’t bad.
• This small sale is to buy time until a clear growth strategy is found, but once the ratio of foreign shareholders exceeds 1/3, building time will likely become more difficult.

• Lasertec has dropped more than 20% in the past week and a half, but is still selling at more than 60x EPS guidance for FY Jun-24.
• Weak orders at ASML, disappointing guidance from TSMC and doubts about Intel’s equipment purchases cast doubt on Lasertec’s growth potential.
• Between December 2021 and June 2022, Lasertec’s share price dropped by more than 50%. Wait for Q3 results before reaching for a falling knife. 

• Shimano continues to reel from a slowdown in bike and fishing tackle sales post Covid
• 1Q operating profit beat the analyst consensus, but the upward revision to full year is minor and falls short of street estimates
• The stock has priced in an improving outlook. However, valuations are now looking full compared to historical levels. 

• In this insight, we look at the fundamentals of J-REITs.  We look at overall Japan real estate, interest rate impact, as well as industry dynamics
• We like logistics sector due to its strong industry fundamentals; we are more bearish on office as vacancy will see more fluctuation in terms of new supply
• On the back of valuation and industry fundamentals, we suggest LONG Nippon Prologis REIT and SHORT Nippon Building Fund