Japan

In today’s briefing:

Global Exchanges – Japan Exchange Is Our 2024 High Conviction Call
Future Human Resource Strategy to Mobilize Power Regardless of Age, Gender, or Nationality

Global Exchanges – Japan Exchange Is Our 2024 High Conviction Call

By Victor Galliano

We rate Japan Exchange as our 2024 high conviction buy in exchanges, for its attractive valuations, as well as its potential for increased market activity and big data revenue growth
We believe that Japan Exchange is the exception to the rule that DM exchanges need to diversify their revenue bases, as it is under less de-regulatory pressure
We also stick with Hong Kong Exchange as the deep value pick, as well as Deutsche Borse; we remain negative on Coinbase

Future Human Resource Strategy to Mobilize Power Regardless of Age, Gender, or Nationality

An increasing number of companies rehire senior employees until age 65 to address labor shortages and pass on skills, but there are challenges in retaining senior employees and maintaining loyalty.
Daikin is expected to be effective in motivating senior employees and passing on skills in terms of extending employment to age 65 without lowering wages.
Daikin’s board members are older, so they fully understood that age was not an obstacle to senior employee success. On the other hand, Daikin faces many challenges in diversity.

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Dec 15

Daily Brief Japan: Shinko Electric Industries, yutori , Toyo Construction, Heroz Inc, Astellas Pharma, Ebay Inc and more

In today’s briefing:

Shinko Electric (6967) Takeover: Initial Break/Gap Risk Analysis
Zozo-Owned Yutori IPO This Month
Toyo Construction (1890 JP): Déjà Vu as YFO’s Proposal Rejected
Heroz (4382 JP) – Growing Evidence of Positive Transformation
Astellas Pharma (4503 JP): Some Recent Positive Developments That Will Yield Benefit in Long-Run
Ebay’s Qoo10 More than Doubles Users to 23 Million in 5 Years

Shinko Electric (6967) Takeover: Initial Break/Gap Risk Analysis

The JIC Deal for Shinko Electric Industries (6967 JP) has been announced and is, as expected, trading wide.
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.
There’s more positioning risk than fundamental risk at this point. And the FUD and Flows have specific timing in this case which makes thing different than JSR. Worth thinking about.

Zozo-Owned Yutori IPO This Month

By Michael Causton

Zozo may lead in online fashion malls but its customer base, while young, is getting older.
In 2020, it acquired a majority stake in Yutori, a fledgling fashion mall targeting the young, which will now list this month.
Yutori has grown sales to ¥2.47 billion since launching five years ago. As well as Japan, it sees a major opportunity across Asia given Japanese street fashion popularity there.

Toyo Construction (1890 JP): Déjà Vu as YFO’s Proposal Rejected

The Toyo Construction (1890 JP) Board has opposed YFO’s potential tender offer price of JPY1,255 per share but has kept the door open for an improved offer.
YFO is running out of options as a YFO candidate-heavy special committee opposed its proposal, and the share price is trading through terms.
YFO has three options: a hostile offer at an unchanged price, an improved price, or exit its position. Each option has issues suggesting a lack of short-term share price support.

Heroz (4382 JP) – Growing Evidence of Positive Transformation

Strong execution on multiple fronts – Q1-2 FY4/2024 results were ahead of expectations, with sales growth of 205.2% YoY and operating profit growth of 572.1% YoY.
Whilst acquisitive growth was to be expected, HEROZ has also demonstrated 1) organic growth in its AI/DX Service with underlying sales growth of 14.6% YoY,
2) increased the proportion of recurring revenue to 62.4% of total sales and thereby continuing to improve earnings visibility

Astellas Pharma (4503 JP): Some Recent Positive Developments That Will Yield Benefit in Long-Run

By Tina Banerjee

Astellas Pharma (4503 JP) has been reporting a couple of positive developments over the last one month. These are right steps toward achieving sustainable and accelerated growth in long-term.
Astellas received European Commission approval for Veoza for the treatment of moderate to severe vasomotor symptoms associated with menopause. This potential blockbuster drug has already been launched in the U.S.
Astellas is acquiring Propella Therapeutics for $175 million. Propella’s clinical-stage lead candidate can be a challenger to the current standard-of-care in prostate cancer treatment.

Ebay’s Qoo10 More than Doubles Users to 23 Million in 5 Years

By Michael Causton

Qoo10 has been quietly growing its share of the Japanese e-commerce market.
Despite relentless competition from the big 3, Qoo10 has managed to increase members from 10 million in 2018 to 23 million through event marketing and close attention to customer demands.
While cosmetics and fashion are the current focus, Qoo10 is also strengthening other categories like food, stationery and electronics.

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Dec 14

Daily Brief Japan: Shinko Electric Industries, Recruit Holdings, Toyota Motor, INFRONEER Holdings , TSE Tokyo Price Index TOPIX, Geo Holdings, Takachiho Koheki, Duskin Co Ltd and more

In today’s briefing:

JIC Deal For Shinko Electric Is LIGHT, and There’s Room To Complain, But Will Trade Wide
Recruit (6098 JP) Buyback – It’s Big But Not THAT Big; Value Act Effect Vs Corp Selldown Vs Multiple
Toyota Cross-Shareholding – To Say a Whole Lot Is Left Would Be a US$26bn Understatement
Infroneer (5076) | Valuation Turbulence
It’s Unreasonable to Hope for Higher Stock Prices While Being Reluctant to Disclose Information
Geo Holdings: Plenty of Money in Old Rope
2Q Follow-Up – Takachiho Koheki (2676 JP)
Duskin (4665 JP) – Proactive Changes to Result in Higher Performance

JIC Deal For Shinko Electric Is LIGHT, and There’s Room To Complain, But Will Trade Wide

29 minutes after I published a long, musing piece on the possibilities of structure and announcement later this week, JIC and Shinko Electric announced 5 minutes before midnight.
A warning for the future: The Nikkei and every other media outlet got the number wrong. It is NOT a total acquisition cost of “around ¥800bn”. It is under ¥700bn.
It IS a split deal. And if JIC won with that price, it tells you something about the state of the market and future deals in the space.

Recruit (6098 JP) Buyback – It’s Big But Not THAT Big; Value Act Effect Vs Corp Selldown Vs Multiple

Last month, Reuters reported that activist-ish investor Value Act Capital Management had bought a stake in Recruit Holdings (6098 JP) and separately in Expedia Group, Inc. (EXPE US)).
It was “revealed” in a letter to its clients. And there were reasons stated why Value Act thought Recruit was worth a lot more than it was trading for.
Today, Recruit announced an on-market buyback for ¥200bn. That’s nice. But it is not enormous, and it may signal other info, and it is worth understanding details and context.

Toyota Cross-Shareholding – To Say a Whole Lot Is Left Would Be a US$26bn Understatement

With Toyota (7203 JP) having sold some of its stake in Denso, KDDI and Harmonic Drive this year, it has firmly set the ball rolling for unwinding some of its cross-shareholding.
Toyota has a shareholding in around 60 listed companies, with its combined disposable stake worth over US$26bn.
In this note, we take a look at its stakes in various companies to see which ones could possibly be candidates for further selldowns.

Infroneer (5076) | Valuation Turbulence

By Mark Chadwick

JWD Acquisition: Infroneer acquires Japan Wind Development for ¥200 billion, sparking a ¥75 billion market cap dip and concerns about potential overpayment.
Valuation Analysis: Using DCF and comparable transaction values, estimates suggest JWD’s equity value may be far lower than the agreed-upon ¥200 billion.
Need for Transparency: Infroneer’s claim of fair value requires scrutiny. Market suggests an estimated fair value of ¥125 billion, emphasizing the need for detailed information on the acquisition.

It’s Unreasonable to Hope for Higher Stock Prices While Being Reluctant to Disclose Information

A company that does’t include a cash flow statement in its 1Q and 3Q financial summaries, which will now be mandatory, is a company that is reluctant to disclose information.
Management groups have called for making quarterly disclosure voluntary. This time, a hand has been dealt with a compromise proposal to unify quarterly reports and financial statements in securities reports.
While the risk of dropping quarterly disclosure in the near future is small, the major problem is that some managers are still reluctant to disclose information.

Geo Holdings: Plenty of Money in Old Rope

By Michael Causton

Consumption of used products is rising fast as exemplified by the rise of 2nd Street.
Operated by Geo Holdings (2681 JP), once just a DVD rental business, it is now Japan’s largest used goods retailer.
Sales are booming in a market increasingly focused on thrift and re-use, allowing 2nd Street to even take on the might of Mercari.

2Q Follow-Up – Takachiho Koheki (2676 JP)

Takachiho Koheki is a trading company highly specialized in electronics technology, introducing the world’s cutting-edge electronics products to Japan ahead of competitors, positioned as a specialized technical group with engineering employees accounting for 42.2% of its workforce.
The company’s electronics products and IT solution services help solve modern social issues of great concern such as crime control and prevention, labor shortages and labor savings, and climate change and disasters.
In 1H FY24/3, the company reported consolidated net sales of ¥12,729 mn (+14.5% YoY), operating profit of ¥713 mn (+22.2% YoY), ordinary profit of ¥1,057 mn (+18.2% YoY), and profit attributable to owners of parent (hereinafter, net profit) of ¥717 mn (+9.2% YoY).

Duskin (4665 JP) – Proactive Changes to Result in Higher Performance

Positive dynamic changes being executed – Q1-2 FY3/2024 results were in line with upwardly revised company guidance and indicated that the company is making steadfast progress in its transformation initiatives via positive capital allocation.
Investment into Smart Factory via RFID technology is being conducted as planned to drive future cost efficiencies, and the company raised its FY dividend forecast to ¥98 per share (initially forecast at ¥78) highlighting the company’s positive stance on returning cash to shareholders.
The Food Group business continues to see robust growth at ‘Mister Donut’ restaurant chain, driven by increases in footfall, average spending, and store sales YoY.

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Dec 13

Daily Brief Japan: Benefit One Inc, Shinko Electric Industries, Denso Corp, Money Forward , TSE Tokyo Price Index TOPIX, Will Group Inc and more

In today’s briefing:

Benefit One (2412): M3 Extends For a Full Month
JIC Consortium Possibly In Line to Win Shinko At “¥800bn”, Which Makes You Go 🤔…
Shinko Electric (6967 JP): JIC’s Pre-Conditional Tender Offer at JPY5,920
Denso (6902 JP): The Current Playbook
Money Forward (3394) | A Growth Stock for 2024
Unification of Quarterly Reports Will Further Increase the Role of TSE
2Q Follow-Up – Will Group (6089 JP)

Benefit One (2412): M3 Extends For a Full Month

Today after the close, Benefit One Inc (2412 JP) amended its Tender Offer Target Opinion Statement to note that Dai Ichi Life had made a proposal to acquire 100%.
To allow the Board time to evaluate this proposal, the Company requested a Tender extension. Bidder M3 Inc (2413 JP) was obliged to extend 10 days. They extended 20 days.
This tells us a bunch of things. It is worth thinking about what happened to get here.

JIC Consortium Possibly In Line to Win Shinko At “¥800bn”, Which Makes You Go 🤔…

A Nikkei article today suggested that Fujitsu had granted preferential negotiating rights to buy Shinko Electric Industries (6967 JP) to a JIC-led consortium (including DNP and Mitsui Chem) for ~¥800bn.
This happened late in the afternoon session. Shares spiked 5+%, then were halted. A gray market ensued.
A Bloomberg article provided more info, and the same info nuanced slightly differently. The wording in yet other articles was interesting enough that it is worth discussing.

Shinko Electric (6967 JP): JIC’s Pre-Conditional Tender Offer at JPY5,920

After months of speculation, Shinko Electric Industries (6967 JP) has recommended the JIC alliance’s preconditional tender offer of JPY5,920 per share, an 18.9% premium to the undisturbed price (31 May).
The pre-condition relates to regulatory approvals in Japan, China, Korea, and possibly Vietnam. The offeror may waive the pre-condition. The offer is long-dated and expected to start in August 2024.
The minimum acceptance condition requires a 33.3% minority acceptance rate. Despite the low 7.1% premium to the last close, the offer resulted from a competing bidding process.

Denso (6902 JP): The Current Playbook

Since the US$4.0 billion secondary placement announcement, Denso Corp (6902 JP)’s shares are down 4.3% from the undisturbed price of JPY2,298 per share (28 November).
Looking at recent large Japanese placements is instructive to understand the potential trading pattern. So far, Denso’s shares have followed the pattern of previous large placements.
The offering will likely be priced on 13 December. Investors participating in previous large Japanese placements tend to secure positive returns.

Money Forward (3394) | A Growth Stock for 2024

By Mark Chadwick

Money Forward’s stock price has declined by 2% YTD versus a 23% gain for the overall market. Technically, the stock is approaching oversold levels
We see 38% upside for Money Forward’s stock price. At 5.5x EV/revenue, the stock is trading at a 50% discount to global peer, Intuit
We believe that investors are under pricing the size of the Japanese market for cloud accounting and operating leverage from penetration into mid-cap corporate market

Unification of Quarterly Reports Will Further Increase the Role of TSE

The contents of quarterly reports are the same as those of financial summaries. Therefore, it’s in order that the quarterly reports for 1Q /3Q be unified with the financial summaries.
The major difference between quarterly securities reports and financial summaries is the significance of legal responsibility. By requiring partial review by auditors, TSE will ensure the reliability of financial summaries.
Meanwhile, TSE must continue to enhance the ethics of company managers and require companies to eliminate malicious misreporting. Unification of quarterly reports would further increase the role of the TSE.

2Q Follow-Up – Will Group (6089 JP)

WILL GROUP unveiled its new MTP “WILL-being 2026” this May.
The aim of the previous MTP “WORK SHIFT Strategy” was to boost profit margins by increasing the weight of high-margin permanent placement and temporary staffing in highly specialized fields, and the Company focused on developing strategic investment domains such as nursing care domain support, support for construction management engineers, and HR support for start-up companies.
In the previous MTP, although the profit margin improved, Domestic Working Business stagnated.

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Dec 12

Daily Brief Japan: Denso Corp, Yamazen Corp, Softbank Group, Torex Semiconductor, Japan Business Systems and more

In today’s briefing:

Denso Corp Placement – Quick Update – In Better Shape Now, Size Concern Remains
Yamazen Secondary Offer (8150 JP) – 5 Banks Sell To Make This a Future Activism Target
Softbank (9984 JP): Adding a Strengthening JPY to the Mix
2Q Follow-Up – Torex Semiconductor (6616 JP)
4Q Follow-Up – Japan Business Systems (5036 JP)

Denso Corp Placement – Quick Update – In Better Shape Now, Size Concern Remains

On 28th Nov 2023, Toyota Motor (7203 JP) announced that it would sell around 9.4% of Denso Corp (6902 JP) in order to reduce its cross-shareholding.
The shares hadn’t corrected much till our last note on 7th Dec 2023, they have since corrected by 6% .
We have covered the deal background and deal dynamics in our earlier notes. In this note, we talk about the recent share price movement, as compared to prior deals.

Yamazen Secondary Offer (8150 JP) – 5 Banks Sell To Make This a Future Activism Target

On Monday after the close, trading house Yamazen Corp (8051 JP) announced a secondary offering where five bank shareholders would sell ~6.7mm shares (including greenshoe).
It appears as if most of the banks are selling everything, making it about US$50mm, 50 days of ADV, and about 7% of shares out.
But this should get swallowed pretty easily. The stock is DIRT CHEAP. The caveat? Crossholders and insiders will still own 45-48% post-offer.

Softbank (9984 JP): Adding a Strengthening JPY to the Mix

By Victor Galliano

In 1HFY23, a weak JPY – with it having depreciated from JPY132 to JPY149 to the USD – has actively supported the group’s valuation, contributing 12% to SoftBank group’s NAV
The BoJ is looking to tighten monetary policy, whilst all other major central banks are set to cut rates; under this scenario, it is likely for the JPY to strengthen
Softbank shares trade at a 51%+ stated NAV discount yet we believe that there is downside risk to at least Arm’s high valuations, which could tighten the discount significantly

2Q Follow-Up – Torex Semiconductor (6616 JP)

Multiple signs are flashing that the reset phase of the silicon cycle is beginning to rebound.
On November 28, WSTS (World Semiconductor Trade Statistics) announced its Fall forecast for 2023 and 2024, marking the first upward revision in the current down cycle, revising up both 2023 to a single-digit decline, and revising up 2024 growth to +13.1%, due to better-than-expected demand in Apr-Jun and Jul-Sep.
Quarterly worldwide billings data shows the YoY percentage decline marked the bottom in Jan- Mar at -21.3% YoY, shrinking to only -4.5% in the Jul-Sep quarter.

4Q Follow-Up – Japan Business Systems (5036 JP)

Among priority measures for FY24/9, JBS management is particularly focused on rolling out global licensing business for major enterprise customers, as well as strengthening cloud AI proposal capabilities.
The strategic business alliance concluded with Crayon Group at the end of August enables JBS to offer global support services to customers outside the coverage of JBS overseas offices.
The two partners will also collaborate on developing AI and security solutions mainly for Microsoft Products.

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Dec 11

Daily Brief Japan: Outsourcing Inc, Visional , Benefit One Inc, ROHM Co Ltd, Japan Airport Terminal Co and more

In today’s briefing:

Outsourcing (2427 JP): Bain-Backed Preconditional MBO Tender Offer at JPY1,755
TOPIX Inclusions: Who Is Ready (Dec 2023)
Merger Arb Mondays (11 Dec) – Benefit One, Outsourcing, Tokyo Rakutenchi, CPMC, Weiqiao Textile
Bain Deal for Outsourcing (2427): Cheeky, Opportunistic, Too Low
Rohm (6963 JP): Government Subsidy for Power Device Project with Toshiba
Japan Airport Terminal (9706 JP, SELL, TP: JPY5,364): Weak JPY Can’t Overcome Fundamental Challenges

Outsourcing (2427 JP): Bain-Backed Preconditional MBO Tender Offer at JPY1,755

Outsourcing Inc (2427 JP) has recommended a Bain-backed preconditional MBO tender offer of JPY1,755 per share, a 52.1% premium to the undisturbed (8 December).
The offer is light vs. peer and historical multiples and opportunistically takes advantage of the 20% price fall due to the disclosure of employment adjustment subsidies issues on 1 August.
Based on the irrevocables, the minimum acceptance condition requires a 61.9% minority acceptance rate. The acceptance rate could prove challenging. The tender offer is to start by late January 2024.

TOPIX Inclusions: Who Is Ready (Dec 2023)

By Janaghan Jeyakumar, CFA

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.
One of our TOPIX Inclusion Pre-event names Visional (4194 JP) confirmed it has received approval to move to the Prime Market in December 2023.
Currently, we are expecting one TOPIX Inclusion at the end of December 2023 and two more at the end of January 2024 (including Visional).

Merger Arb Mondays (11 Dec) – Benefit One, Outsourcing, Tokyo Rakutenchi, CPMC, Weiqiao Textile

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 – Outsourcing Inc (2427 JP), Healius (HLS AU), Irc Ltd (1029 HK), Orecorp Ltd (ORR AU), Hollysys Automation Technologies (HOLI US), Tokyo Rakutenchi (8842 JP).
Lowest spreads Toyo Construction (1890 JP), IJTT Co., Ltd. (7315 JP), Tietto Minerals Ltd (TIE AU), Azure Minerals (AZS AU), T&K Toka Co Ltd (4636 JP), Benesse Holdings (9783 JP).

Bain Deal for Outsourcing (2427): Cheeky, Opportunistic, Too Low

On Friday 8 December, Bain announced an MBO with Outsourcing Inc (2427 JP) Chair Haruhiko Doi to take the company private at a 51% premium. Looks good at first glance.
It is, however, an offer at ~6.6x Management Forecast derived Dec 2024 EBITDA. This for a top player in a fast-growing market where Street/mgmt both see up-and-to-the-right results from here.
This is a delayed start (late-Jan) for regulatory approvals. It is too cheap. It is blockable. But Doi-san is young at 64yrs old and he could come back years later.

Rohm (6963 JP): Government Subsidy for Power Device Project with Toshiba

By Scott Foster

Rohm’s share price was up 6% on Friday, December 8, on the news that the Japanese government will subsidize its collaboration with Toshiba in power semiconductors.
The subsidy will amount to one-third of the ¥388.3 billion yen the two companies plan to invest in Silicon Carbide and Silicon devices for the electric vehicle and other industries.
Rohm hit bottom on October 31, management cut FY Mar-24 guidance on November 1 and the market is now looking to recovery. Toshiba will be delisted on December 20.

Japan Airport Terminal (9706 JP, SELL, TP: JPY5,364): Weak JPY Can’t Overcome Fundamental Challenges

By Mohshin Aziz

Japan Airport Terminal Co (9706 JP) (JAT) has turnaround and set to resume its earnings growth trajectory thanks to Japan’s brisk air traffic recovery
However, future growth is increasingly challenging as domestic traffic stalls, and international traffic growth relies on inbound tourists. What happens if tourists decide to go elsewhere?
Target price JPY5,364 (18% DOWNSIDE) based on 12.7x FY2024 EV/EBITDA (peer group average). SELL, grossly overvalued, Mexican and Chinese airports are far more attractive

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Dec 10

Daily Brief Japan: Benefit One Inc, DISCO Corp, Rakuten Group , Keisei Electric Railway Co and more

In today’s briefing:

Benefit One (2412 JP): Thoughts on the Potential Minority Offer Price
Last Week in Event SPACE: Pasona/Benefit One, EOFlow, Swire Pacific, Hankook & Co, Toyo Construction
Index Rebalance & ETF Flow Recap: NKY, TW Div+, ASX200, NZX50, Mom30, Top10EW, MVW, Rakuten Bank
ECM Weekly (10th Dec 2023) – Toyota, Denso, Rakuten, Evolution, IRCON, REPT, UBTech, Entero
The Goose that Takes Out the Golden Egg Dies. Manager Should Explain How the Goose Can Grow Bigger

Benefit One (2412 JP): Thoughts on the Potential Minority Offer Price

Dai Ichi Life Insurance (8750 JP)‘s pre-conditional tender offer for Benefit One Inc (2412 JP) has a total value of JPY285,733 million (JPY1,800 per share).
The offer structure is that Pasona Group (2168 JP) will receive JPY1,800 less TOB tax benefits. Minorities will receive JPY1,800 plus the proportionate share of Pasona’s TOB tax benefits.
Our estimated minority offer price is JPY2,086 per share, which is 15.9% higher than the JPY1,800 floor price and 9.1% higher than the last close price.

Last Week in Event SPACE: Pasona/Benefit One, EOFlow, Swire Pacific, Hankook & Co, Toyo Construction

By David Blennerhassett

Dai Ichi Life (8750 JP)‘s proposal suggests more upside to Benefit One (2412 JP)‘s minorities than originally thought, and less upside (but still a chunk) to Pasona Group (2168 JP).
It’s all over for EOFlow (294090 KS), as Medtronic Plc (MDT US) folds it tent.
Cho Hyun-Sik (eldest son of Cho Yang-Rae, Chairman of Hankook & Company (000240 KS) has joined MBK Partners in making a partial Tender Offer for Hankook & Co.

Index Rebalance & ETF Flow Recap: NKY, TW Div+, ASX200, NZX50, Mom30, Top10EW, MVW, Rakuten Bank

By Brian Freitas

There were a lot of rebalance implementations in China on Friday, plus a few upcoming index changes that were announced during the week.
There are a lot of implementations this week, with KOSPI 200 and KOSDAQ 150 on Thursday and then others across a bunch of countries on Friday.
There were big inflows to Tracker Fund of Hong Kong (2800 HK) during the week taking units outstanding to a new high. ETF inflows continue even as the market drops.

ECM Weekly (10th Dec 2023) – Toyota, Denso, Rakuten, Evolution, IRCON, REPT, UBTech, Entero

Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
In the IPO space, Sino-Synergy Hydrogen Energy Technology (9663 HK) and Dekon Food didn’t do much even as other are lining up to try their luck.
On the placements front, Japan and India flows continue like there is no tomorrow.

The Goose that Takes Out the Golden Egg Dies. Manager Should Explain How the Goose Can Grow Bigger

In the long run, making Oriental Land, which is more profitable, a consolidated subsidiary through TOB would contribute to expanding Keisei’s corporate value.
Keisei’s foreign shareholder ratio is 27.4%. It seems premature for the rotating president to change at once the company’s tradition of maintaining 40-year relationship with Oriental Land as an affiliate.
Keisei should explain how it will develop its relationship with affiliate to increase corporate value, and what its business strategy would be if it were to sell its shareholding instead.

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Dec 09

Daily Brief Japan: Benefit One Inc, Pasona Group, Kasumigaseki Capital, Kosaido, Hamamatsu Photonics Kk, Nikkei 225 and more

In today’s briefing:

New Benefit One Deal Recalculated, More Benefit for All, Less for One
Pasona Is Up Bigly. More To Come
Kasumigaseki Capital (3498 JP) – An Offering Worth Examining
KOSAIDO Holdings (7868) – Showcasing Growth Through Competitive Advantage
Hamamatsu Photonics (6965 JP): Buy into Current Weakness
EQD | Nikkei 225 WEEKLY Analysis

New Benefit One Deal Recalculated, More Benefit for All, Less for One

The deal from Dai-Ichi Life for Benefit One Inc (2412 JP) appears language I did not get the first time around. The JPY 1800/share price is a proposed combined value.
The deal would then lower the TOB price to Pasona, and share the benefits from that lower price to Benefit One minorities.
That suggests more upside to Benefit One than I originally thought, and less upside (but still a chunk) to Pasona.

Pasona Is Up Bigly. More To Come

By David Blennerhassett

After M3 Inc (2413 JP) announced an intention to buy 51.16%-55.00% of Benefit One Inc (2412 JP) via a partial Tender Offer at ¥1,600, Pasona Group (2168 JP) took off.
Now Dai Ichi Life Insurance (8750 JP) has countered with an unsolicited ¥1,800/share Offer of Equity Value; TOB followed by a Benefit One buyback to mop up Pasona’s stake.
The big news is how tax would be applied under Dai Ichi’s deal structure, which should see Pasona’s net proceeds significantly exceed those under M3’s Offer.

Kasumigaseki Capital (3498 JP) – An Offering Worth Examining

Kasumigaseki Capital is a small cap consulting real estate speculator/developer. They have an interesting, aggressive model. People will recognise the model from pre-GFC but this one is structured better.
The company had planned explosive growth and in October, brought growth plans forward and guidance way up. Now there is an offering to fund that growth.
It appears to also be an offering to get a very large short position out of a risk of potential squeeze. For that, I expect this goes smoothly.

KOSAIDO Holdings (7868) – Showcasing Growth Through Competitive Advantage

Capitalizing on growth opportunities – Q1-2 FY3/2024 results were ahead of company guidance, driven by the Funeral Services segment, as attendee numbers and refreshment sales grew, and new funeral hall openings saw higher than expected utilization rates.
We believe this indicates the strong competitive positioning the company has as the market-leading funeral services operator in the Tokyo metropolitan area.
With effective cost control in the Information and HR segments, the company has high earnings visibility and raised FY3/2024 company guidance, as well as increasing the planned dividend payout ratio to 32.5% from 30%.

Hamamatsu Photonics (6965 JP): Buy into Current Weakness

By Scott Foster

The shares are down 27% from their May high, largely discounting excessive inventory and a decline in profits that is likely to continue through next March or June.
Inventory adjustment, the revival of semiconductor, factory automation and medical related demand, plus the leveling off of depreciation, should enable a return to growth after that.
Projected valuations are at the low end of their 10-year ranges. Buy into the current weakness, keeping in mind that 1Q results are likely to be weak.

EQD | Nikkei 225 WEEKLY Analysis

By Nico Rosti

The Nikkei 225 (NKY INDEX) closed the week down (CC=-2) at 32307.86, it’s OVERSOLD, WEEKLY and MONTHLY.
Our hypothesis is that this pullback is about to end (it could last maybe another week, or maybe it’s already over…), and will be followed by higher prices.
Go LONG the Nikkei 225 in the support area between 31000 and 32000, this coming week.

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Dec 08

Daily Brief Japan: Benefit One Inc, Pasona Group, O S Co Ltd, Sapporo Holdings, Rakuten Group , COPRO-HOLDINGS Co Ltd, Aoyama Zaisan Networks Co Lt and more

In today’s briefing:

Dai-Ichi Life (8750) Proposes a Full Takeover of Benefit One (2412), Overbidding M3
New Deal for Benefit One (2168) Could Mean Lots More Money for Pasona (2168)
Benefit One (2412 JP): Dai-Ichi Life Counters M3 with a Privatisation Offer
Hankyu Hanshin Takeout of OS Corp
2024 High Conviction: Sapporo Poised for a Strong Year Driven by Tax Revision & Investor Activism
Cash Generation from the Sale of Subsidiary Shares Is the Default, but the Issue Remains Postponed
2Q Follow-Up – Copro-Holdings (7059 JP)
Aoyama Zaisan Networks Company (8929JP) – Focusing on the Quality of Earnings

Dai-Ichi Life (8750) Proposes a Full Takeover of Benefit One (2412), Overbidding M3

Today post-close, life insurer Dai Ichi Life Insurance (8750 JP) announced plans to launch a Tender Offer to buy out all minorities in Benefit One Inc (2412 JP) at ¥1,800/share.
M3’s Partial (55%) Tender at ¥1,600/share ending next week is obviously a question.
This is GREAT news for M&A in Japan. It’s good for holders of Benefit One and Pasona Group (2168 JP) too.

New Deal for Benefit One (2168) Could Mean Lots More Money for Pasona (2168)

Today, Dai Ichi Life Insurance (8750 JP) announced a proposed counter/over-bid for Benefit One Inc (2412 JP). ¥1800/share for minorities and a better (undefined) outcome for Pasona Group (2168 JP).
This throws the cat amongst the pigeons as it is unsolicited, for 100% not just to get Pasona’s stake, and it will require Benefit One recommend or not.
For Pasona, this deal structure would likely increase the net result from the stake sale, possibly substantially so. It’s in the details.

Benefit One (2412 JP): Dai-Ichi Life Counters M3 with a Privatisation Offer

Dai Ichi Life Insurance (8750 JP)‘s pre-conditional tender offer for Benefit One Inc (2412 JP) is JPY1,800 (floor price) + share of Pasona Group (2168 JP)’s TOB tax benefits.
The pre-conditions relate to the Board recommendation, Pasona support, and M3 Inc (2413 JP) offer not completing its partial offer. The tender offer starts in mid-January 2024 (20 business days).
While the Dai-ichi Life offer is light, M3’s engagement in a bidding war is low. The proposed minimum acceptance condition (15.51% ownership ratio) requires a 32% minority acceptance rate.

Hankyu Hanshin Takeout of OS Corp

The flip-side of the Toho Takeout of Rakutenchi – Buying a Real Estate Portfolio at a 50% Premium but 0.7x NAV. is the Hankyu-Hanshin deal to buy OS Corp (9637).
Tokyo-Based Toho buys out Kansai-based Hankyu-Hanshin’s stake in Tokyo-based Rakutenchi. HH buys out Toho’s stake in Kobe-based OS Corp. This is a “TOB Swap”. HH owns 21.7% of Toho too.
Like Rakutenchi, it is being done at a PBR higher than 1, but a decent discount to NAV. But this one is horribly, horribly illiquid (1,000 shs/day)

2024 High Conviction: Sapporo Poised for a Strong Year Driven by Tax Revision & Investor Activism

By Oshadhi Kumarasiri

Buoyed by strong post-pandemic domestic consumption and the return of inbound visitors to Japan, Sapporo Holdings (2501 JP) has been firing on all cylinders in recent quarters.
Business fundamentals for next year look strong, with the company positioned to benefit the most from Japan’s liquor tax revisions.
Additionally, activist investor 3D Investment Partners could successfully advance their proposals to divest the Real Estate business.

Cash Generation from the Sale of Subsidiary Shares Is the Default, but the Issue Remains Postponed

By canceling the IPO of Rakuten Securities, it is assumed that Rakuten Group wanted to generate cash on schedule even if it was 10 billion yen less than originally planned.
Although Rakuten Group could generate cash in the predetermined time. it remains unclear whether the company has secured a path to improve cash flow in the pending cell phone business.
If Rakuten Securities went to public, another parent-subsidiary listing would have been created, so the cancellation of the IPO can be evaluated as positive for the quality of the market.

2Q Follow-Up – Copro-Holdings (7059 JP)

COPRO-HOLDINGS. Co., Ltd., (COPRO) announced its 2Q FY24/3 results after market close on Tuesday, November 14, 2023.
Key consolidated figures included net sales of ¥11,137 mn (+28.5% YoY), operating profit of ¥737 mn (+56.9% YoY), ordinary profit of ¥810 mn (+71.8% YoY), and net income attributable to the parent company of ¥510 mn (+81.9% YoY).
Sales were largely in line with initial forecasts, while profits were 61.4% higher than initial forecasts, mainly due to lower back-office-related labor costs.

Aoyama Zaisan Networks Company (8929JP) – Focusing on the Quality of Earnings

A positive surprise – Q1-3 FY12/2023 results highlighted the positive demand environment for AZN’s services, with Inheritance consulting sales growing 47.1% YoY driven by new customer acquisitions.
The company’s aim to improve the quality of earnings is demonstrated by improvements in underlying profitability with the sales mix shifting towards Wealth Consulting, while Real Estate Solutions provides cross-selling opportunities and strong access to engage with new customers.
The company has revised its FY12/2023 earnings estimates and on track to book record-high earnings, and has currently maintained its FY dividend forecast of ¥41 per share.

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Dec 07

Daily Brief Japan: Rakuten Bank , Harmonic Drive Systems, Tokyo Rakutenchi, Japan Airlines, Denso Corp and more

In today’s briefing:

Rakuten Bank (5838 JP) Overnight Offering at a Fat Discount
Toyota To Sell Harmonic Drive (6324 JP) Shares in Overseas Offering
Rakuten Bank Placement – Was Expected at Some Point, Current Timing Seems Opportunistic
Rakuten Bank (5838 JP) Placement: Index Inclusion Will Absorb Some Stock
Harmonic Drive Placement – Cleanup Share Sale Will Remove the Overhang
Toho Takeout of Rakutenchi – Buying a Real Estate Portfolio at a 50% Premium but 0.7x NAV.
Tokyo Rakutenchi (8842 JP): Toho’s Tender Offer at JPY6,720
Japan Airlines (9201 JP, BUY, TP: JPY3150): Slow, Steady, Stable Recovery
Denso Corp Placement – Not Quite Shaping up for a Win Yet

Rakuten Bank (5838 JP) Overnight Offering at a Fat Discount

After the close today, Rakuten Group (4755 JP) announced the sale of 25.5mm shares of Rakuten Bank (5838 JP), right as the IPO lockup was reaching its expiry. Expected.
Pricing is 6-7 Dec (pre-Tokyo open 7 Dec), delivery 11 Dec 2023. Indicative price range is 8.5-12.5% discount for a deal of US$425mm or so.
In an interesting technical detail, this will take Rakuten below 50%. There is some near-term index demand, some in April, some next October. Rheos could be more overhang.

Toyota To Sell Harmonic Drive (6324 JP) Shares in Overseas Offering

Today, Toyota Motor (7203 JP) announced it would sell 4.379mm shares (4.55%) of Harmonic Drive Systems (6324 JP) in an overseas placement.
This is not so big as it is emblematic, adding to the recent news on Toyota unwinds.
Harmonic Drive is heavily held by foreign institutions. This is a foreigners-only deal. But it will need to be absorbed by that group too.

Rakuten Bank Placement – Was Expected at Some Point, Current Timing Seems Opportunistic

Rakuten Group (4755 JP) aims to raise US$430m via selling around 14.6% of Rakuten Bank (5838 JP).
RB is the largest internet bank in Japan, by number of accounts. As of Sep 23, it had 14.3m deposit accounts with a total deposit base of JPY9.5tn.
In this note, we will talk about the deal dynamics and updates since our last note.

Rakuten Bank (5838 JP) Placement: Index Inclusion Will Absorb Some Stock

By Brian Freitas

Rakuten Group (4755 JP) is looking to sell 25.5m shares of Rakuten Bank (5838 JP) via a secondary offering at a discount of between 8.7%-12.3%.
The offering will raise a maximum of US$433m and Rakuten Group (4755 JP) will use the funds to reduce its interest-bearing debt by the early repayment of its bonds.
There will be limited passive buying at the time of settlement of the stock but there is an index inclusion coming up that will result in passives buying.

Harmonic Drive Placement – Cleanup Share Sale Will Remove the Overhang

By Clarence Chu

Toyota Motor (7203 JP) is looking to raise US$116m from selling its entire stake in Harmonic Drive Systems (6324 JP).
Toyota Motors has indicated over the past one-two weeks that it will be looking to sell/trim its stakes in various entities as part of its exit from its multiple cross-holdings.
While the deal would be a relatively large one to digest at 10 days of ADV, Toyota Motors will be selling its entire stake, clearing the overhang.

Toho Takeout of Rakutenchi – Buying a Real Estate Portfolio at a 50% Premium but 0.7x NAV.

Yesterday, Tokyo Rakutenchi (8842 JP)‘s #1 shareholder Toho Co Ltd (9602 JP) agreed to buy out the rest of Tokyo Rakutenchi from its #2 and #3 shareholders and minorities.
The Takeover Price is a 51% premium. Which is nice. But the asset is a real estate portfolio, and it was sold as a company, not a real estate portfolio.
The revaluation surplus to market value for the real estate assets is more than net equity, so Takeover PBR >1.0, but Price/NAV of the takeover is 0.7x, without synergies included.

Tokyo Rakutenchi (8842 JP): Toho’s Tender Offer at JPY6,720

Tokyo Rakutenchi (8842 JP) has recommended Toho Co Ltd (9602 JP)’s tender offer of JPY6,720 per share, a 51.5% premium to the undisturbed (6 December).
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 24.29% ownership ratio.
Based on the irrevocables, the minimum acceptance condition requires a 30.2% minority acceptance rate. This acceptance rate is doable as the offer represents a ten-year high.

Japan Airlines (9201 JP, BUY, TP: JPY3150): Slow, Steady, Stable Recovery

By Mohshin Aziz

Japan Airlines (9201 JP) (JAL) is making a positive recovery on strong domestic and international demand
Weak JPY is a big headwind and so is its 40% fuel hedge cover locked in at higher than-market price. These factors should reverse and unwind next year
Target price JPY3,150 based on 1.65x FY24 P/BV – one standard deviation above its mean. Borderline attractive with 12% UPSIDE, and 2.3% dividend yield

Denso Corp Placement – Not Quite Shaping up for a Win Yet