Japan

• On 19 April, Taiyo Co-CEO Brian Heywood told Bloomberg and Reuters they were considering three options to Brother Industries (6448 JP)’s tender for Roland DG Corp (6789 JP). 
• Taiyo’s options are bumping its offer, walking away or tendering into the Brother’s offer if it bumps and alleviates dis-synergies concerns.
• All three options are likely a ruse. Taiyo’s primary play is to frustrate and pressure Brother to withdraw its bid if it cannot get the Board’s recommendation.

• Value Act’s recent statement might suggest that they have prevailed and Seven & I Holdings (3382 JP) has yielded to their demands. However, the reality might be less straightforward.
• Value Act sought new market expansion, but Seven & I is focused on reinforcing its presence in existing, well-established markets.
• Given Value Act’s impatience, their acceptance of Seven & I’s plan for a 2026 Super Stores IPO, contingent on a business transformation, is unexpected.

• Postal price hike approved  swinging the Post business from a loss to a profit
• Cancellation of 7.36% of outstanding shares from the latest buyback
• Management Plan to be released in May will provide further details on improving ROE and PB

• We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
• Highest spreads: Qantm Intellectual Property (QIP AU), Southern Cross Media (SXL AU), Azure Minerals (AZS AU), QV Equities Ltd (QVE AU), Hollysys Automation Technologies (HOLI US), Shinko Electric. 
• Lowest spreads: Chilled & Frozen Logistics Holdings (9099 JP), Roland DG Corp (6789 JP), Mma Offshore (MRM AU), Pact Group Holdings (PGH AU), Newmark Property REIT (NPR AU), Lawson.

• 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)‘s deal launch made it the first large HK IPO for this year.
• On the placement front, Vodafone Idea (IDEA IN) deal was live. Also there are lockup expiries in Kokusai Electric (6525 JP) and J&T Global Express (1519 HK) coming up. 

• S&P 500 looks vulnerable. Maintain large cash positions for forseeable future.
• US Dollar bull flagging and may put pressure on equities in near term.
• Nikkei at inflection point. Bulls must stand up here to defend.

• Shift Inc (3697 JP) ’s share price has been down more than 50% YTD with the release of 1QFY08/2024 results in January 2024 which saw a drop in margins.
• The company’s aggressive investment in HR and system reinforcement led to a decline in margins, however, margins saw a QoQ improvement in 2QFY08/2024.
• Despite there being an improvement in 2Q and the company expecting the margins to bounce back in 4Q, Shift’s share price has continued to fall.

• Stricter voting standards for domestic investment managers seem aimed at increasing value through engagement for companies that show little improvement in efforts to improve stock price and return on capital.
• Stricter voting standards for policy shareholding ratios of domestic investment management companies are expected to push companies to consider reducing cross-shareholdings. Reference to deemed shareholdings is also commendable.
• Since engagement of overseas investors has been effective in increasing value of companies, engagement by Japanese investment managers more seriously than before will contribute to enhancing the value of companies.

• Pasona (2168 JP)will pay out 10-20% of the extraordinary gain from the Benefit One (2412 JP) sale. It will take its sweet time doing so. For no apparent reason.
• Hang Lung Properties (101 HK)‘s first-ever scrip dividend provides the means for the Chan Family to indirectly chip away at minorities. 
• Hollysys Automation Technologies (HOLI US) accountant resignation announcement is a nothing burger. An  update on PRC regulatory approvals would be welcome about now though. 

• USDJPY is breaking 154, almost 20-year high.  In general, weaker Yen is positive for investment in real estate as properties look cheaper from a foreign investor perspective
• Yen weakness is also positive to tourism in Japan, as weak currency will drive tourist arrival and boost tourism
• We like Japan Hotel REIT on the back of attractive valuation and weaker Yen.  We also like other Japan RE names like 8801 and 8802

• The Financial System Report published on April 18th focuses on the key Japanese bank issues, including the prospect of domestic rate hikes
• We focus primarily on the key take-aways from the BoJ report, in particular with relation to potential rate hikes; our key picks appear to be better geared than the average
• We highlight Resona, Mizuho and Concordia in the bigger caps, with positive views on Suruga, Gunma and Tokyo Kiraboshi in the regional banks

• The problem lies in the fact that even with a 10% increase in net profit, ROE only grew by 0.5%. This is due to having too much cash on hand.
• TSE has provided an opportunity for companies to develop measures to increase their corporate value. However, not many companies can derive concrete ways to effectively use cash.
• Since many companies are expected to take time to find concrete solution to this problem, an increasing number of companies are expected to go private once they have done so.

• Kondotec Inc (7438 JP) is a wholesaler of construction materials in the same league as companies such as Okabe Co., Ltd. (TSE PRM: 5959).
• In FY03/23, sales amounted to JPY75.4bn (+14.1% YoY), operating profit came to JPY4.4bn (+21.2% YoY), recurring profit was JPY4.6bn, and net income attributable to owners of the parent was JPY2.4bn.
• Kondotec Inc. announced changes to its lineup of representative directors (a change of president).

• Shinko Electric Industries (6967 JP)‘s pre-conditional tender offer from the JIC alliance is JPY5,920 per share. The gross spread widened from a low of 3.1% on 14 March to 7.0%. 
• The widening spread can be attributed to China SAMR approval timing, earnings risk, Ibiden Co Ltd (4062 JP)’s material underperformance lowering the break price and a large fund liquidating positions. 
• The deal break risks remain low with the timing remaining the key risk. The current 7.0% spread is an attractive opportunity to add. 

• Inageya Co Ltd (8182 JP) announced a share exchange offer by United Super Markets (3222 JP) at 1.46 USMH shares per Inageya share.
• The share exchange aligns with Aeon Co Ltd (8267 JP)’s well-flagged intention of making Inageya a wholly-owned subsidiary of USMH.
• Aeon’s 50%+ shareholding in Inageya and USMH facilitates the two EGM votes. The deal metrics are broadly fair for both sets of shareholders. 

• Arm – which we estimate accounts for 45% of SoftBank group’s equity value – is experiencing limits to its “growth at any price” stock status; the shares fell 12% yesterday
• The JPY’s depreciation is supportive of the group NAV, but with the Fed’s hawkish stance well known and BoJ expected to raise interest rates, JPY weakness may be largely done
• SoftBank shares trade at a wide 53%+ discount to the estimated NAV; yet we see downside risks to Arm’s valuation, along with the potential for JPY weakness to reverse

• 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. 
• 12wks 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 5wks ago, reco’d trimming.
• Shinko had outperformed Ibiden, and gross spreads had come in 5+% on JSR’s approval. Spreads are now 3% wider than their narrowest, but gap risk has widened as Shinko outperforms.

• Today after the close, the results of the JSR Corp (4185 JP) Tender Offer were announced. Bidco JICC-02 obtained 84.36% of the shares out in the Tender Offer. 
• That means imminent index downweights, delayed index downweights, and theoretically another selldown on the last day of listed existence. 
• News which came up since the start of the Tender Offer make this a little more difficult than it might have otherwise been. 

• Since “profitability of capital” like ROE or ROIC cannot create value in mid-to-long-term without improvement, the fact that ROE has stalled is a cause for concern for future stock prices.
• The slow growth in Net Profit Margin and the sluggish improvement in Asset Turnover and Financial Leverage indicate that it is still holding too much cash, cross-held shares, etc. 
• Nearly half of all listed companies are companies with major shareholders of 20% or more, which is an obstacle to improving corporate governance.

• In this insight, we explore Mitsubishi Estate, who is the second largest real estate company in terms of market cap
• Mitsubishi Estate major business is in office (Tokyo CBD), residential/condo, as well as some retail and hotel
• Japan stock market is upbeat and saw the largest inflow among Asia YTD.  8802 valuation is not demanding.

• Nexon is a leader in the video game virtual worlds industry with an enterprise value of $11.4 billion
• The company has consistently high EBIT margins and a robust portfolio of popular franchises that have generated billions in revenue
• Despite being undervalued by the market compared to its peers, Nexon is poised for significant growth and offers potential for future success for investors

This content is sourced through publicly available sources and has been machine generated. Information displayed is for general informational purposes only. This article was originally published 3 months ago on Value Investors Club.

• Last autumn, Kokusai Electric (6525 JP) was IPOed by KKR. The lockup expires next week, on 21 April 2024 (a Sunday). That frees up about 70% of the stock.
• KKR’s own stake is worth about US$2.8bn. It is not clear that Applied Materials, Qatar, or the Koch Strategic Platforms stakes would be for sale (now, or near-term).
• There is an interesting schedule of events between here and a likely offering date. It pays to pay attention to the details. 

• In the mid-late teens, four refinery groups merged to create two refinery groups – JX and Tonen General became JXTG under ENEOS Holdings (5020 JP) and Idemitsu took over ShowaShell.
• When Idemitsu got ShowaShell, it got 50+% in Toa Oil Co Ltd (5008 JP), 6.58% of Fuji Oil Co Ltd (5017 JP). In 2020, they tried to buy in Toa.
• That was delayed by an activist. Today, Idemitsu announced they had gone to 23% in Fuji Oil. That stake will go up before it goes down.

• Nidec’s share price rose by 7% on the largest volume day of the year and on a day where the Nikkei declined by 2%.
• The move followed an announcement that Nidec will enhance its CDUs production line in Thailand by 10x by June 2024. CDUs are used to cool AI servers in data centres
• The market impact of 250 billion yen implies a sales impact of 69 billion yen, which is far too high for 24,000 units per year

• Leading furniture retailer Nitori recently announced it would work with French platform developer Mirakl to build an online marketplace. The site will be available late 2024 or early 2025. 
• Nitori wants the mall to contribute 20% of revenues by 2032 within a sales target of ¥3 trillion, when overseas store numbers are expected to be double those in Japan.
• But, founder Akio Nitori says he wants to see overseas sales much higher than official targets and may well get there through close targeting of the rising Asian middle class.

• During the period under consideration, i.e. February 28th 2024 to March 29th, 2024, the USD/JPY pair fluctuated between 146 and 152 Yen per 1 Dollar.
• The MA-10 line at the beginning of the period considered was moving above the MA-20 line.
• From March 7th until March 22nd the MA-10 line trend changed and was moving below the MA-20. 

• JTEC Corp is a specialist technology innovator, and a global market leader in customized X-ray mirrors used in synchrotron radiation and X-ray free-electron laser facilities worldwide.
• With its competitive advantage in technology through high R&D spending and strong partnerships with academic and research institutions, the company is switching back to a robust growth trajectory driven by 1) normalized business conditions post- COVID-19,
• 2) new construction and upgrade demand for synchrotron radiation facilities, particularly from China, and 3) business expansion in the life sciences and semiconductor sectors.

• Rorze exceeds expectations in FY2/24 with a 6% revenue beat and an 11% surpass in operating profit, setting a record-high revenue of 28 billion yen in 4Q FY2/24.
• FY2/25 revenue guidance of 120 billion yen marks a 12% beat against analyst estimates, with operating profit expected to hit 32 billion yen, outperforming expectations by 10%.
• Rorze’s stock, though no longer deeply undervalued, remains reasonably priced at 16.5x NTM EBIT, indicating strong potential for earnings growth-driven future upside.

• TSE officially announced that it will request prime market listed companies to simultaneously disclose two documents, financial statements and timely disclosure information, in Japanese and English from April 2025.”
• Given the characteristics of Japanese companies, which tend to implement only minimum requirements, few companies will engage in English language disclosure in their annual securities reports, which wasn’t explicitly stated.
• Rather than improving the quality of the market to make it easier for global investors to trade, TSE has set efforts targets to match the speed of the slowest ship.

• KKR raised around US$730m via selling some stake in Kokusai Electric (6525 JP) Japan IPO in Sep 2023. Its remaining stake will be released from its IPO linked lockup soon.
• KE main business activities consist of the manufacturing, sales and maintenance service of semiconductor manufacturing equipment.
• In this note, we talk about the upcoming lock-up expiry and possible deal dynamics.

• During the period under consideration, i.e. February 28 th , 2024 to March 29th, 2024, the USD/JPY pair fluctuated between 146 and 152 Yen per 1 Dollar.
• The MA-10 line at the beginning of the period considered was moving above the MA-20 line. From March 7 th until March 22 nd , the MA-10 line trend changed and was moving below the MA-20.
• By the end of the examined period, the MA-10 line ended up above the MA-20 line.

• On Friday, Pasona Group (2168 JP) announced its expected use of funds into the May 2024 results, including a special dividend plan, investment for growth, and “strengthening the operating platform.”
• The plan will disappoint. The stock may get hit hard. The truth is somewhere in the middle. This is where active stewardship matters. So get stewarding.
• A special div paid over 5yrs should be paid one-shot, now. If the company has plans worth supporting, set KPIs now, ask for money later. Good plans get good money.

• With HK/China continue to see risk-off sentiment; we switch our focus to Japan.  Nikkei is up 19% YTD, one of the best performing markets in the world
• Among Japan real estate names, Mitsui Fudosan is a well held name with the largest market cap.  8801 is up 45% YTD while 8802 is up 57% YTD
• Valuation is un-demanding, it is an interesting name to own if investors want exposure to Japan.  It is still not too late to chase the rally

• Money Forward reported Q1 results. Net sales rose 40% YoY to 9.5 billion yen
• Money Forward saw a big jump in profitability, which puts the company on track to meet full year guidance
• The stock has risen around 30% since January. We still see around 7% upside to our target valuation 

• Taiyo Pacific’s Tender Offer for Roland DG Corp (6789 JP) was to end Friday, but it was extended 10 days. 
• Roland DG provided an update regarding the status of the Brother overbid. It did not show as much strategic-mindedness as it might have.
• Shares are now trading at a post-overbid high. Strategic missteps up the risk but Brother can pay more.

• I tally 51 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• Two new deals discussed on Smartkarma this week: Madison Dearborn’s low-balled Offer for APM Human Services (APM AU); and NTT Data Corp (9613 JP)‘s Offer for Jastec (9717 JP).
• Key updates took place on: Boral Ltd (BLD AU), Azure Minerals (AZS AU), Genex Power (GNX AU), JSR Corp (4185 JP), Chilled & Frozen Logistics Holdings (9099 JP), & Lawson (2651 JP).

• 9 weeks ago, the FT reported Elliott Management had a stake in Mitsui Fudosan (8801 JP) and had asked them to sell cross-holdings and do a ¥1trln buyback. Mitsui responds.
• Lawrence Ho is buying Melco(200 HK). While it often pays to follows where the family invests, Melco is trading too tight for what is a simple holding company structure.
• Avoid being long Aozora Bank Ltd (8304 JP) vs the Banks Index, a portfolio of other cheaper banks, etc. Minimal/negligible upside in following Murakami-san here. And Activism on Banks is difficult.

• Since 2020, there has been a divergence between P/B and TOPIX movements, complicating matters for listed companies that have been asked to raise their P/Bs.
• Expectations are high for a rise in ROE, which has a certain correlation with nominal GDP, which is also increasingly correlated with TOPIX, as deflation exits.
• If price pass-through fails, escaping deflation may not lead directly to higher profit margins. If profit margin increase is insufficient, reducing cash on hand is essential to increase ROE.