Japan

In today’s briefing:

Renesas (6723 JP) ANOTHER Clean-Up Block Trade as Hitachi/NEC Exit
Renesas Electronics (6723 JP): Passives Will Need to Buy a LOT This Year
Renesas Electronics Placement – Another US$2bn Deal, Momentum and Index Weights Should Help
Japanese Laggard Opportunity #2: Okuma Corp (6103 JP)
Fujitsu General (6755) – UGLY Forecast Change but Fujitsu Still Wants Out
Size of Market Capitalization Will Make a Difference in Corporate Governance and Value Creation

Renesas (6723 JP) ANOTHER Clean-Up Block Trade as Hitachi/NEC Exit

Last November saw the clean-up trade of INCJ getting out of Renesas Electronics (6723 JP). That was 180+mm shares, well over-subscribed.
Today we have news Hitachi and NEC are getting out of their stakes. That’s 123mm shares in an Accelerated Block Offering of about US$2bn. I expect it will go well.
Recent gains in semiconductor stocks globally make this larger discount attractive. I expect a little heaviness but not much. There are index repercussions for international indices.

Renesas Electronics (6723 JP): Passives Will Need to Buy a LOT This Year

By Brian Freitas

Hitachi Ltd (6501 JP) and NEC Corp (6701 JP) are looking to sell their entire stake in Renesas Electronics (6723 JP) in a deal that will raise around US$2.2bn.
Renesas Electronics (6723 JP) dropped a bit in November following INCJ’s stake sale but momentum has picked up again as the stock reaches for new highs.
The float increase in global indices will coincide with the offering. There will be BIG buying by TSE Tokyo Price Index TOPIX (TPX INDEX) trackers in October.

Renesas Electronics Placement – Another US$2bn Deal, Momentum and Index Weights Should Help

By Sumeet Singh

Hitachi Ltd (6501 JP) and NEC Corp (6701 JP) aim to raise around US$2.1bn via a sell-down of their stake in Renesas Electronics (6723 JP).
The stock has seen a number of deals over the past few years with the most recent one being a cleanup in Nov 2023, which did well.
In this note, we will talk about the placement and run the deal through our ECM framework.

Japanese Laggard Opportunity #2: Okuma Corp (6103 JP)

By Mohshin Aziz

Okuma Corp (6103 JP) is flagged as a good candidate to boost its shareholder value, it has a net cash balance sheet, P/BV of 0.9x and low PE of 10.7x
Management has elaborated a detailed plan to boost its P/BV ratio, with targets to boost revenues and profit margins, as well as a 35% dedicated payout for dividends
Okuma should trade at least 1x Book given its strong business positioning and brand name; we derive a fair value of JPY7,300 (11% UPSIDE) using FY2024’s forecast book value

Fujitsu General (6755) – UGLY Forecast Change but Fujitsu Still Wants Out

Fujitsu General (6755 JP) came out with an ugly Q3 and ugly full-year forecast change. It appears there is lots of inventory-clearing in the channel in addition to macroeconomic headwinds.
The split is a little difficult to discern, but the reason for channel-clearing makes a lot of sense from the distributor side. How long it lasts hard to know.
This creates the impetus for more cost-cutting/restructuring measures before a delayed v-bound to March 2025. Fujitsu STILL wants to sell. It may make extraordinary proposals to get it done.

Size of Market Capitalization Will Make a Difference in Corporate Governance and Value Creation

It is premature to start discussions on stopping raising the hurdles of the Corporate Governance Code when Japan’s boards are not dominated by a majority of independent directors.
If listed companies are left to voluntarily improve their corporate governance practices, differences in corporate governance practice efforts among listed companies are expected to widen.
Companies with high percentage of foreign shareholders, primarily those with large market capitalization, are expected to continue to improve their corporate governance practices through engagement by overseas investors. vice versa

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Jan 25

Daily Brief Japan: Payroll, Resona Holdings, Nidec Corp and more

In today’s briefing:

Payroll (4489 JP) MBO (¥1,380/Share) By New Japan PE Deal Entrant TA Associates
Bank of Japan Meeting Signals– Our Take on the Implications for Japanese Banks
Payroll (4489 JP): TA Associates’ Tender Offer at the IPO Price (JPY1,380)
Nidec (6594) | A Mixed Quarter

Payroll (4489 JP) MBO (¥1,380/Share) By New Japan PE Deal Entrant TA Associates

Payroll (4489 JP) today announced that it would go private in a deal led by US PE Firm TA Associates (Japan office led by a former Carlyle person it appears).
Payroll IPOed in June 2021 at ¥1,380. Then it fell. Now this takeout is at ¥1,380/share. Not a great look but not egregiously unfair by the looks of it.
This deal is going to get done easily as agreed participants and probable-friendlies get them past the minimum without retail or foreign holders participating.

Bank of Japan Meeting Signals– Our Take on the Implications for Japanese Banks

By Victor Galliano

In the post meeting press briefing, governor Kazuo Ueda said there was an increasing chance of the BoJ’s 2% inflation target being hit; JGB 10Y yields rose as a result
This implies that the BoJ could change from negative interest rate policy in the near future, perhaps as soon as March, which is positive for the Japanese bank sector’s fundamentals
We believe that this new will give further impetus to Japanese bank shares, especially those banks that are well geared into rising domestic interest rates; we highlight eight banks

Payroll (4489 JP): TA Associates’ Tender Offer at the IPO Price (JPY1,380)

Payroll (4489 JP) has recommended TA Associates’ sponsored MBO tender offer of JPY1,380 per share, a 42.4% premium to the undisturbed (23 January).
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 61.28% ownership ratio.
Based on the irrevocables, the minimum acceptance condition requires a 30.5% minority acceptance rate, which is achievable as the offer is marginally short of the all-time high.

Nidec (6594) | A Mixed Quarter

By Mark Chadwick

Consolidated net sales increased by +4.4% YoY to ¥594,026 million
Operating profit increased by 90% YoY to ¥53,562 million, but were down 3.7% QoQ.
Full-Year guidance for OP was revised down by 20% to ¥180,000 million. We remain bullish on long-term structural electrification thesis

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Jan 24

Daily Brief Japan: JSR Corp, Shinko Electric Industries, Recruit Holdings, TSE Tokyo Price Index TOPIX and more

In today’s briefing:

JSR (4185) – Very Juicy Arb Return At Expected Timeline
Shinko Electric (6967 JP): Tender Offer Risk/Reward
Recruit: More Challenges Ahead for HR Tech Business
CG Watch, Which Made Great Strides Will Be Tested Next Time for Substantial Governance Improvements

JSR (4185) – Very Juicy Arb Return At Expected Timeline

Five weeks ago, JIC announced a delay in the commencement of the Tender Offer to buy JSR Corp (4185 JP), originally scheduled to start by end-December 2023.
In the announcement, they said they expected the deal to start by end-February. In the press conference afterwards, JIC CEO Yokoo said “no particular issues with the Chinese regulator.”
He then added he expected the deal to be done by March-end. Language is vague. I expect that means to start by then, but even then, annualised is now 30%.

Shinko Electric (6967 JP): Tender Offer Risk/Reward

By Shifara Samsudeen, ACMA, CGMA

Shinko Electric Industries (6967 JP)‘s pre-conditional tender offer from the JIC alliance is JPY5,920 per share. Since the deal announcement, the gross spread has averaged 8.3%.
The wide gross spread reflects the risk in satisfying the pre-conditions related to country approvals, particularly China and shareholder approval, due to Ibiden Co Ltd (4062 JP)’s re-rating.
Ibiden’s re-rating is not necessarily an issue. JIC’s confidence in securing SAMR approval for the JSR Corp (4185 JP) transaction by March is a positive for Shinko’s SAMR approval.

Recruit: More Challenges Ahead for HR Tech Business

Recruit’s share price had rallied 38% since November 2023 driven by the stake acquisition by the hedge fund ValueAct despite there being a decline in the company’s earnings.
Labour markets have further weakened in the December quarter while web traffic on Recruit’s job platforms Indeed and Glassdoor have significantly declined during the quarter.
Though Recruit Holdings (6098 JP) has guided for a decline in earnings, we think there is further downside to the company’s guidance.

CG Watch, Which Made Great Strides Will Be Tested Next Time for Substantial Governance Improvements

Government ministries, agencies and the TSE want to raise the value of the Tokyo market, even if it means using the opinions of overseas investors, including activist investors.
Companies with high foreign ownership and large market capitalization are proactive in corporate governance efforts, while many other companies are passive, indicating that differences in efforts among companies are significant.
Thanks to the revision of the Corporate Governance Code, corporate governance practices have improved mainly in terms of formal criteria, and now substantive improvements are required.

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Jan 23

Daily Brief Japan: Mitsubishi UFJ Financial (MUFG), T&K Toka Co Ltd, Kato Sangyo, GENDA , Nikkei 225 and more

In today’s briefing:

TSE Action to Implement Management Conscious of Capital Cost and Stock Price – The Data Tool
T&K TOKA (4636 JP): Bletcherous Bain Bump Doesn’t Even Reach Blandiloquent – Another Offensive Deal
Japanese Laggard Opportunity #1: Kato Sangyo (9869 JP)
T&K Toka (4636 JP): Bain Bumps to JPY1,410 as Dalton Agrees to Tender
GENDA Lock-Up – Since Selling in the IPO, Midas Capital’s Remaining Stake Is up Another 60%
EQD | Nikkei 225 – MONTHLY Rally Trajectory Analysis + Resistance Targets

TSE Action to Implement Management Conscious of Capital Cost and Stock Price – The Data Tool

A few days ago, 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】
That translates to “Action to Implement Management That is Conscious of Cost of Capital and Stock Price”. The TSE asked companies in Mar-2023 to formulate and disclose a policy.
Some have. Some have not. The TSE made a list. They will update the list every month. However, their list is wholly inadequate, so we made it better.

T&K TOKA (4636 JP): Bletcherous Bain Bump Doesn’t Even Reach Blandiloquent – Another Offensive Deal

I expected a blandiloquent but bletcherous bump from Bain. Discussed in T&K TOKA (4636 JP): Expect ANOTHER Blandiloquent But Bletcherous Bump From Bain. We got bletcherous.
But at a mere ¥10 uplift to ¥1,410, we did not get blandiloquent. That’s insulting. But as suggested in the first piece, there was NAVF Risk. And we got it.
NAVF agreed to sell its 24+% to Bain at ¥1,410 in return for being able to buy 15% of the bidco, fully-levered (i.e. they roll in at minimal cost).

Japanese Laggard Opportunity #1: Kato Sangyo (9869 JP)

By Mohshin Aziz

We identified Kato Sangyo (9869 JP) (Kato) as the most attractive Japanese laggard opportunity due to its net cash balance sheet, undemanding PER, and attractive PEG and P/FCF ratios
Management guides for 25% EPS growth in FY24 with only 15% net profit growth, implying a massive share buyback of ~JPY9 billion (5.4% shares in issue) with subsequent cancellation
The combination of impending share buybacks, cancellation of existing treasury shares, and dividends equates to 10% shareholder returns in FY24

T&K Toka (4636 JP): Bain Bumps to JPY1,410 as Dalton Agrees to Tender

T&K Toka Co Ltd (4636 JP) has recommended Bain’s revised tender offer of JPY1,410 per share, a highly disappointing 0.7% premium to the previous JPY1,400 offer.
Bain’s marginal bump was due to securing Dalton’s support through the Nichii Gakkan Co (9792 JP) playbook. Dalton will tender its shares and make a 15% re-investment in the offeror.
Shareholders representing a 60.82% ownership ratio, including share options, will accept, paving the way to success. With shares trading 4.7% above terms, it is time to move on.

GENDA Lock-Up – Since Selling in the IPO, Midas Capital’s Remaining Stake Is up Another 60%

By Clarence Chu

GENDA (9166 JP) (GENDA) was listed on the TSE on 28th July 2023. The IPO had been a mix of primary and secondary shares.
Genda develops and operates amusement facilities in Japan, primarily operating under its Genda GiGO Entertainment subsidiary.
Coming up for six-month lockup expiry are the pre-IPO shareholders, notably Midas Capital, and the firm’s executives and directors.

EQD | Nikkei 225 – MONTHLY Rally Trajectory Analysis + Resistance Targets

By Nico Rosti

The seasonal matrix indicates a possibility for the Nikkei 225 (NKY INDEX) to continue its current rally into April and that rally should end in May.
The index at the moment is very overbought, we expect some form of WEEKLY pullback soon, please consult our previous insight to find the WEEKLY resistance levels.
The pullback should be seen as a WEEKLY pullback within a larger, longer MONTHLY (multi-month) uptrend, i.e. an opportunity to buy and/or add positions at better prices.

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Jan 22

Daily Brief Japan: Shinko Electric Industries, Denso Corp, JSR Corp, TSE Tokyo Price Index TOPIX and more

In today’s briefing:

Shinko Electric (6967) Takeover: Changing Break/Gap Risk as Comps Gain
The Hunt for the Japanese Laggards, Here Are 47 Attractive Companies
Merger Arb Mondays (22 Jan) – JSR, Benefit One, T&K Toka, Guppy’s, Genetron, Weiqiao, Probiotec
ROE and Valuations of Japanese Stocks Will Improve Through Dissolution of Parent-Subsidiary Listings

Shinko Electric (6967) Takeover: Changing Break/Gap Risk as Comps Gain

The JIC Deal for Shinko Electric Industries (6967 JP) started trading wide when announced five weeks ago. It is still at 9% for perhaps 9 months.
There is FUD. There are Flows. Just like JSR (4185). Some of that FUD can be explained by “gap risk” on deal break…. or can it? We look at risks.
5 weeks ago, there was more positioning risk than fundamental risk. But now main comp Ibiden has outperformed Shinko by 17%. Gap risk is fundamentally lower now. Bump risk exists.

The Hunt for the Japanese Laggards, Here Are 47 Attractive Companies

By Mohshin Aziz

Tokyo Stock Exchange (TSE) has published the list of companies that are conscious of stock capital and share price; this will be a recurring monthly feat
The initial compliance rate is encouraging and should continue to grow as peer pressure is relentless and doing nothing is not an option. The shake-up is happening
We narrow down a list of companies that are the most compelling laggard opportunities based on their low price to book ratio (PBR) and strong balance sheet

Merger Arb Mondays (22 Jan) – JSR, Benefit One, T&K Toka, Guppy’s, Genetron, Weiqiao, Probiotec

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 – GUPPY’s Inc (5127 JP), Hollysys Automation Technologies (HOLI US), Shinko Electric Industries (6967 JP), Probiotec Ltd (PBP AU), Irc Ltd (1029 HK), Genetron Holdings Ltd (GTH US).
Lowest spreads – T&K Toka Co Ltd (4636 JP), Tietto Minerals Ltd (TIE AU), Benesse Holdings (9783 JP), Benefit One Inc (2412 JP), Orecorp Ltd (ORR AU).

ROE and Valuations of Japanese Stocks Will Improve Through Dissolution of Parent-Subsidiary Listings

It’s no surprise that some companies consider the dissolution of parent-subsidiary listings as a swift and effective measure to raise ROE. However, not every listed subsidiary will be TOB.
TOB of a high-profitability subsidiary can have significant impact on both the denominator and numerator of the parent company’s ROE because it uses more cash and will improve profit margins.
Even if the “significance of parent-subsidiary listings” is disclosed, few investors believe that the listed subsidiary’s independence is fully ensured, and the dissolution of parent-subsidiary listings will eventually follow.

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Jan 21

Daily Brief Japan: GUPPY’s Inc, Activia Properties, IBJ, Benefit One Inc, Allegro MicroSystems and more

In today’s briefing:

GUPPY’s (5127 JP): Medley (4480 JP) Tender Offer at JPY3,250
Activia Properties (3279) – Short-Term Higher-Impact Buyback on Better Fundamental Results
IBJ (6071) – Aiming to Solidify Its Dominant Market Position
Weekly Deals Digest (21 Jan) – Benefit One, GUPPY’s, T&K Toka, Weiqiao, Genetron, Amer Sports
Allegro MicroSystems: Initiation of Coverage – How Its Strategic Focus is Electrifying the Future of Transportation – Major Drivers
Last Week in Event SPACE: Benefit One, China Unicom, Zhejiang Expressway/ Zheshang Sec, Hollysys

GUPPY’s (5127 JP): Medley (4480 JP) Tender Offer at JPY3,250

GUPPY’s Inc (5127 JP) has recommended Medley (4480 JP)’s tender offer of JPY3,250 per share, an 81.0% premium to the undisturbed price (19 January).
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 10.19% ownership ratio.
Despite the premium, the offer is light vs the IFA DCF valuation. Based on the irrevocables, the minimum acceptance condition requires a 23.4% minority acceptance rate, which is achievable.

Activia Properties (3279) – Short-Term Higher-Impact Buyback on Better Fundamental Results

Activia Properties (3279 JP) announced results Wednesday. Higher DPU on better rental income looks to continue next period, but an asset disposal will produce some drag ahead.
Activia Properties also announced a buyback of 10% of ADV for the next four months.
The REIT is slightly cheap to peers. Yield spread to JGBs is high which is good. It needs to be 10% higher to restart accretive equity offerings.

IBJ (6071) – Aiming to Solidify Its Dominant Market Position

By Astris Advisory Japan

Market leader positioning to consolidate – IBJ is a marriage consultancy service with strong brand equity, offering high-quality services delivered by human professionals.
With an industry-leading membership base, affiliated marriage consulting firms within the IBJ network harness the economies of scale through the platform, ensuring a cost-effective approach to service delivery.
It has a strong track record of sustainable free cash flow generation.

Weekly Deals Digest (21 Jan) – Benefit One, GUPPY’s, T&K Toka, Weiqiao, Genetron, Amer Sports

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 – Amer Sports (AS US), Ola Electric (1700674D IN) and Mixue Group (MIX HK) IPOs.
Event-Driven developments – Benefit One Inc (2412 JP), GUPPY’s Inc (5127 JP), T&K Toka Co Ltd (4636 JP), Weiqiao Textile Co (2698 HK), Genetron Holdings Ltd (GTH US).

Allegro MicroSystems: Initiation of Coverage – How Its Strategic Focus is Electrifying the Future of Transportation – Major Drivers

By Baptista Research

This is our first report on sensor technology player, Allegro MicroSystems.
Sales in these strategic growth areas made up 56% of total sales, indicating a successful strategy execution focused on these specific sectors.
The company’s automotive revenues grew 31% year-over-year, with the electrification of vehicles and Advanced Driver Assistance Systems adoption being the main growth drivers.

Last Week in Event SPACE: Benefit One, China Unicom, Zhejiang Expressway/ Zheshang Sec, Hollysys

By David Blennerhassett

Dai Ichi Life (8750 JP) has the wherewithal, and probably the synergies to make a bump for Benefit One (2412 JP) work. M3 is clearly not in the driver’s seat.
China United Network (600050 CH) is, for all intent and purpose, a pseudo-A to China Unicom (762 HK). Go long Unicom, short United due to Unicom’s significantly cheaper valuation.
Zhejiang Expressway (576 HK) has had a stonking run since its rights issue. Look to unwind this set-up and take the other side: short Expressway, long Zheshang Securities (601878 CH).

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Jan 20

Daily Brief Japan: Dai Ichi Life Insurance, GUPPY’s Inc, iShares MSCI ACWI ETF, Softbank Group, TSE Tokyo Price Index TOPIX and more

In today’s briefing:

Dai-Ichi Life Holdings – 4 Quarters Strongly Rising Profit, ROE: 3% to 12%, A Profit Upgrade?
Medley (4480) To Buy Out Guppy’s (5127) At ¥3,250 (9.4x Aug26 EV/FCF)
Pause/Pullback Underway; Downgrading Europe and Mexico; Buys in Services, Tech, Comm, Healthcare
Softbank (9984 JP): Big Fat NAV Discount, but Headwinds Outweigh Tailwinds Going Forward
What Can Be Done to Make the Independence of the Committee Function that Investors Have Questioned?

Dai-Ichi Life Holdings – 4 Quarters Strongly Rising Profit, ROE: 3% to 12%, A Profit Upgrade?

By Daniel Tabbush

Dai Ichi Life Insurance (8750 JP) has seen rebounding net profit at a strong rate of growth for the past four quarters.
ROE has moved from a dismal 3.4% to 11.8% from 2Q23 to 2Q24, where a single US bank impairment should now drop out of the numbers
New business annual premiums are up from JPY97bn to JPY122bn from 2Q23 to 2Q24 with a high solvency ratio of 654%

Medley (4480) To Buy Out Guppy’s (5127) At ¥3,250 (9.4x Aug26 EV/FCF)

Medley (4480 JP) operates recruitment platforms in healthcare, elsewhere. GUPPY’s Inc (5127 JP) does too. They also offer exam prep for two niches where they have super-high market share.
GUPPY’s was listed 18mos ago, and the founder wants out. The deal is a nice premium (+86%) but it isn’t as generous a deal as it could be.
That said, the shareholder structure looks like this deal gets done pretty easily.

Pause/Pullback Underway; Downgrading Europe and Mexico; Buys in Services, Tech, Comm, Healthcare

By Joe Jasper

We see global equities (MSCI ACWI) going through a pause/pullback amid short-term breakouts in the U.S. dollar (DXY) and global sovereign 10-year yields.
A rising DXY and climbing yields is a near-term headwind, and we could continue to see more choppy price action in the weeks ahead.
With that said, as long as the DXY remains below $106, the 10-year Treasury yield remains below 4.35%, and ACWI-US is above $98, we would view pullbacks as buying opportunities.

Softbank (9984 JP): Big Fat NAV Discount, but Headwinds Outweigh Tailwinds Going Forward

By Victor Galliano

SoftBank group’s headline NAV discount is over 50%, factoring in the T-Mobile shares windfall at December-end
SoftBank Corp is looking to IPO digital payments company PayPay, which should also be a positive driver for SoftBank Group shares going forward, but only a marginal one
Arm shares have been defying gravity, but we see downside risk going forward, as well as questions over SVF1 and SVF2 private company valuations; and the threat of JPY appreciation

What Can Be Done to Make the Independence of the Committee Function that Investors Have Questioned?

While disclosure of committee activities in annual securities report provides clues to the independence of committee, this might create higher hurdle for moving to Company with US type 3 Committees.
Based on the premise that disclosure of committee activities can change management’s mindset and enable committees to function, more specific details should need to be disclosed to all listed companies.
Many companies have nominating committees that meet 1-2 times a year before the AGM. Few companies have a Succession Plan, which is of great interest to investors.

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Jan 19

Daily Brief Japan: Tokyo Kiraboshi Financial Group, Japan Exchange Group, Shift Inc and more

By Shifara Samsudeen, ACMA, CGMA

In today’s briefing:

Japanese Regional Banks – Three Key Positive Picks
Japan Governance | Will Reforms Unlock Valuations
Shift: Market Overreacts to Temporary Dip in Earnings

Japanese Regional Banks – Three Key Positive Picks

By Victor Galliano

We explore twelve Japanese regional banks to look for key beneficiaries of the improving interest rate outlook, along with valuations, credit quality and capital adequacy
The global interest rate outlook is in some flux, with the Fed’s and ECB’s prospects of near-term easing being tempered; this should support Japanese JGB yields and domestic bank valuations
We are positive on three banks that are big beneficiaries of rising domestic interest rates; top pick Tokyo Kiraboshi Financial, Gunma Bank and higher risk option Suruga Bank

Japan Governance | Will Reforms Unlock Valuations

By Mark Chadwick

Reforms Drive Improvement: Japan’s corporate reforms, catalyzed by governance codes and TSE pressure, are fostering capital efficiency, shareholder value, and long-term equity gains.
“Name and Shame” Initiative Impact: TSE’s disclosure initiative reveals 54% of Topix 500 companies enhancing capital efficiency, with early indications suggesting positive longer-term performance trends.
Future Alpha Opportunities: Expectation of increased disclosure in the coming months, particularly from proactive companies; potential for market surprises from obstructive firms trading below book value.

Shift: Market Overreacts to Temporary Dip in Earnings

Shift Inc (3697 JP) reported 1QFY08/2024 results last week. Revenue and OP increased 29.5% and 0.4% YoY to ¥25.1bn and ¥1.8bn respectively.
Both revenue and OP were below consensus estimates which triggered a more than 25% drop in Shift’s share price over the last 5 days.
We think the weaknesses in the company’s 1Q earnings were temporary and we expect the company’s earnings to show recovery going forward

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Jan 18

Daily Brief Japan: Anycolor , Yamae Group Holdings, TSE Tokyo Price Index TOPIX, Hisamitsu Pharmaceutical Co and more

In today’s briefing:

TOPIX Jan FFW Change – Visional (4194), Anycolor (5032), Furuya Metal (7826)
Yamae Group Placement – Would Result in a Large Dilution, Although Its Momentum Has Been Strong
Investors Expect a Feasible Management Strategy Rather than an Accurate Cost of Capital
Hisamitsu Pharmaceutical (4530 JP): OTC Business Is on Strong Footing; FY24 Guidance Raise

TOPIX Jan FFW Change – Visional (4194), Anycolor (5032), Furuya Metal (7826)

Late last week, the TSE announced the changes in FFW for companies which have FY-end in the calendar Q2. Changes at 30 Jan close also include Phased Weighting Changes.
There are two additions and 61 upweights (including net effect of PWR/PWIs). There are 456 down-weights with two-way flows of about US$1bn. There is a tiny funding trade.
Visional (4194 JP) and Furuya Metal (7826 JP) are the two adds. Other large dollar upweights are Asahi Intecc (7747 JP) and Anycolor (5032 JP).

Yamae Group Placement – Would Result in a Large Dilution, Although Its Momentum Has Been Strong

By Clarence Chu

Yamae Group Holdings (7130 JP) is looking to raise US$115m from a primary follow-on. As per the firm, proceeds will be used to pay down its acquisition-linked debt.
We would argue that the deal is somewhat well flagged given the firm’s track record of acquisitions, with the most recent being Confex Holdings.
That being said, the deal would result in a large dilution for the firm, and would be a large one to digest at 48 days of Yamae’s three month ADV.

Investors Expect a Feasible Management Strategy Rather than an Accurate Cost of Capital

Although there’s range in the cost of capital, a sense of level is shared among investors, so even if a company estimates lower, it will be found to be incorrect.
The essential problem isn’t scrutiny of the cost of capital, but rather that many companies produce low returns. Investors are skeptical that companies produce returns above their cost of capital.
If stock prices do not rise, investors will continue to demand that companies improve their management, attributing this to the negative gap between the cost of capital and return.

Hisamitsu Pharmaceutical (4530 JP): OTC Business Is on Strong Footing; FY24 Guidance Raise

By Tina Banerjee

Hisamitsu Pharmaceutical Co (4530 JP) has reported double-digit revenue and net profit growth in Q3FY24, mainly driven by 21% YoY growth in Salonpas focused OTC pharmaceutical products.
The company attributes OTC product revenue growth to aggressive sales promotion activities in Japan and overseas, recovery of domestic economic activity and inbound demand, and impact of the weaker yen.
Encouraged by Salonpas revenue recovery, Hisamitsu has raised FY24 guidance. The company has revised FY24 revenue guidance upward by 7% to ¥141 billion (up 10% YoY) from ¥132 billion.

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Jan 17

Daily Brief Japan: Benefit One Inc and more

In today’s briefing:

Benefit One (2412): The Plot Thickens
Benefit One (2412 JP): Who Will Blink First as M3 Extends the Closing Date?

Benefit One (2412): The Plot Thickens

Today, the day before the previously extended M3 Inc (2413 JP) Partial Tender Offer for Benefit One Inc (2412 JP) was due to expire, M3 extended it another 20 days.
Dai Ichi Life Insurance (8750 JP) several days ago extended their expected start date by weeks – from mid-January to early February.
The wording in the new document from M3 is curious. It bears examination. As does the strategy positioning and choice of each of the participants.

Benefit One (2412 JP): Who Will Blink First as M3 Extends the Closing Date?