Japan

In today’s briefing:

Japan Activism: Japan Catalyst Fund Calls Out Taisho Pharma Committee on MBO Price
Mischief Managed! Iwatani Corp (8088) Buys Out Murakami-San’s Cosmo Energy Stake
Last Week in Event SPACE: Denso, Sapporo, Hollysys, PCCW, Origin Energy
3Q Follow-Up – D. Western Therapeutics Institute (DWTI) (4576 JP)
Weekly Deals Digest (03 Dec) – Denso, T&K Toka, CIMC Vehicles, Origin, OreCorp, Hollysys, BPLANT
ECM Weekly (3rd Dec 2023) – Denso, Toyota, Zensho, Asahi, Kotak, Zomato, Zeekr, Tatatech, IREDA

Japan Activism: Japan Catalyst Fund Calls Out Taisho Pharma Committee on MBO Price

Japan Catalyst Fund is a relatively young effort in the Japan “engagement activism” space, having been founded by Monex Group in September 2019. Total assets remain apparently small.
Championed by Monex Group founder Oki Matsumoto, despite small AUM, the fund has decent access. As of end-October, Taisho Pharmaceutical Holdings (4581 JP) was #5 and 5.26%. Now it’s #2.
Friday, they released a statement about the MBO. It isn’t a barn-burner, but the stock has traded through terms since announcement at a too-low price. And nobody else has commented.

Mischief Managed! Iwatani Corp (8088) Buys Out Murakami-San’s Cosmo Energy Stake

The question of how Murakami-san would get out of his stake in Cosmo Energy Holdings (5021 JP) was always a biggie. He likes to sell stock in tender offer buybacks.
Cosmo wasn’t going to do that for him. They promised dividends and a high payout ratio, but that left the question was how he was going to get out.
A semi-obvious solution was to find a corporate partner to buy his stake and today, Iwatani Corp (8088 JP) announced that it had bought 19.86% of Murakami-san’s 20.01% holding.

Last Week in Event SPACE: Denso, Sapporo, Hollysys, PCCW, Origin Energy

A holistic view of the three different documents here suggests the Denso Corp (6902 JP) buyback, indeed, “It was a trap”.
3D Investment Partners raised its stake in Sapporo Holdings (2501 JP), suggesting the activist investor is optimistic about successfully advancing their proposals.
A firm merger proposal is expected for Hollysys Automation Technologies (HOLI US) in the next couple of weeks. Time to buy.

3Q Follow-Up – D. Western Therapeutics Institute (DWTI) (4576 JP)

By Sessa Investment Research

Major milestones with high expectations coming in the next 2-3 years: 1) Phase IIb US trials for H-1337 as “first choice as a second-line Glaucoma drug” for patients who do not respond to PGs
2) 2023 application, 2024 approval and 2025 launch of DW-1002 in Japan, 2023 application/approval/launch in China, as well as expedited development of combination formula MembraneBlue-DualR (DW-1002 + trypan blue) in the US [NEW]
3) clinical trials in 2024 in Japan and application for approval in 2025 of regenerative cell medicine DWR-2206

Weekly Deals Digest (03 Dec) – Denso, T&K Toka, CIMC Vehicles, Origin, OreCorp, Hollysys, BPLANT

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 – Denso Corp (6902 JP)‘s US$4.0 Billion Secondary Offering and US$1.4 Billion Buyback.
Event-Driven developments – CIMC Vehicle Group Co Ltd (1839 HK), Origin Energy (ORG AU), Orecorp Ltd (ORR AU), Hollysys Automation Technologies (HOLI US), Boustead Plantations (BPLANT MK).

ECM Weekly (3rd Dec 2023) – Denso, Toyota, Zensho, Asahi, Kotak, Zomato, Zeekr, Tatatech, IREDA

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, Tata Technologies and IREDA continued the India IPO juggernaut.
On the placements front, there seems to be no stopping Japan flows.

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Dec 02

Daily Brief Japan: Mizuho Financial Group, Monogatari Corp and more

In today’s briefing:

Japanese Banks – Our Main Thoughts Post 2Q23 Results
A Company in Japan Confirms That “Companies that Take Care of Sexual Minorities Are More Profitable”

Japanese Banks – Our Main Thoughts Post 2Q23 Results

By Victor Galliano

We focus on five key factors, namely capital adequacy, credit quality, exposure to government securities, interest rate gearing and valuation with growth metrics for our Japanese banks universe
It is important to note that the relaxation of yield curve control is translating into rising loan yields generally in the BoJ data to September-end 2023
We stick with our positive views on Resona, Mizuho and Concordia; we remove Hachijuni from the buy list and SMFG, replacing the latter with MUFG in the large cap banks

A Company in Japan Confirms That “Companies that Take Care of Sexual Minorities Are More Profitable”

Many LGBTQ have been harassed during their job search, and while hiring managers are under-prepared, Monogatari Corporation is one of the few companies that is committed to LGBTQ human rights.
Monogatari Corporation believes that the diversity of individuals is the foundation for creating value, and that a series of individual differentiation enhances the company’s competitive advantage as a major differentiation.
Monogatari Corporation’s high profit margins and sustained growth give hope that the hypothesis that “companies that care about sexual minorities are more profitable” may be supported.

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Dec 01

Daily Brief Japan: Denso Corp, Ito En Ltd Preferred Shares, Sapporo Holdings, CyberAgent Inc, Taisho Pharmaceutical Holdin, Kobayashi Pharmaceutical Co, Toyota Motor Corp Spon Adr and more

In today’s briefing:

Denso – Thoughts On The Cross-Holdings Sell-Down
Itoen Pref (25935 JP) – Big Discount, Big Buyback, No Big Governance Change
Sapporo Holdings: Activist Investor 3D Investment Partners Assumes Majority Ownership
2024 High Conviction – CyberAgent: Worst Seems to Be Over
(Mostly) Asia M&A, Nov 2023: Taisho Pharma, CIMC Vehicle, CMIC, Japan Best Rescue, Shidax
Kobayashi Pharmaceutical Co (4967 JP): Q3 Shows Early Signs of Business Revival; Aims Big for US
Toyota Motor Corporation: Market Dynamics in China & the Impact on Toyota’s Electric Vehicle Strategy! – Major Drivers

Denso – Thoughts On The Cross-Holdings Sell-Down

By Mio Kato

The trend of governance reform in Japan continues with Toyota, Toyota Industries and Aisin selling shares of Denso.
Denso is buffering some of the flow impact by repurchasing roughly half of the shares to be sold.
While the size of these moves is relatively large we believe their impact could be disproportionately large for the market as a whole.

Itoen Pref (25935 JP) – Big Discount, Big Buyback, No Big Governance Change

By Shifara Samsudeen, ACMA, CGMA

This is always a tough subject, but every now and then I throw myself on the mercy of the ho-humming crowd and write about the Ito En Prefs (25935 JP).
No strong catalyst. Limited capacity for strongly better governance. Even less apparent corporate interest in good governance.
But we have a mini-catalyst, and it has been a while, and I think there IS a good way to think about this stock, so here’s another crack at it.

Sapporo Holdings: Activist Investor 3D Investment Partners Assumes Majority Ownership

By Oshadhi Kumarasiri

Last week, activist investor 3D Investment Partners raised its stake in Sapporo Holdings (2501 JP) by an additional 13%, cementing its position as the majority shareholder in the business.
This suggests the activist investor is optimistic about successfully advancing their proposals.
If investment properties are sold or spun off, and Alcoholic Beverages and Food & Soft Drinks undergo the suggested turnaround, we anticipate an additional 80-100% upside in the near term.

2024 High Conviction – CyberAgent: Worst Seems to Be Over

CyberAgent Inc (4751 JP) (CA) is a Japan-based media and entertainment company offering media, internet advertising, smart games and investment development businesses in Japan.
The gaming business of the company has collapsed with the slowdown of hit title UMA MUSUME while titles released after UMA MUSUME have failed to perform satisfactorily.
Profitability of Internet advertising and media are expected recover and seems that worst is over for the games business as several titles are slated for release in the near future.

(Mostly) Asia M&A, Nov 2023: Taisho Pharma, CIMC Vehicle, CMIC, Japan Best Rescue, Shidax

For the month of November 2023, 16 new deals (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$13bn.
The average premium for the new deals announced (or first discussed) in November was 41%. The average YTD is 38% (97 deals).
This compares to the average premium for all deals in 2022 (106 deals), 2021 (165 deals), 2020 (158 deals), and 2019 (145 deals) of 41%, 33%, 31%, and 31% respectively.

Kobayashi Pharmaceutical Co (4967 JP): Q3 Shows Early Signs of Business Revival; Aims Big for US

By Tina Banerjee

Kobayashi Pharmaceutical Co (4967 JP) witnessed business revival in Q3, especially in the domestic household and the U.S. business. In Q3, revenue increased 6% YoY and 13% QoQ to ¥45.4B.
Kobayashi has reiterated FY24 guidance. The company has guided for FY24 revenue of ¥172.0B (+4% YoY), operating income of ¥25.5B (-4% YoY), and net profit of ¥20.2B (-1% YoY).
By establishing the supplement business in North America and further expanding OTC medicines, the company aims to achieve sales of ¥34B in the U.S. in 2030, including ¥16B from healthcare.

Toyota Motor Corporation: Market Dynamics in China & the Impact on Toyota’s Electric Vehicle Strategy! – Major Drivers

By Baptista Research

Toyota Motor Corporation delivered a positive result and managed an all-around beat in the last quarter.
Consolidated vehicle sales reached 114.1% of the previous fiscal year, totaling 4,744,000 units.
Toyota and Lexus brand vehicle sales amounted to 5,172,000 units, representing 109.1% of the same period last fiscal year.

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Nov 30

Daily Brief Japan: Denso Corp, Toyota Motor, Kurita Water Industries, Mitsubishi Motors, Santen Pharmaceutical, TSE Tokyo Price Index TOPIX, Golf Digest Online and more

In today’s briefing:

Huge Denso (6902) Secondary Sale by Toyota Group – Admiral Ackbar Says “It’s A Trap!”
Denso Offering, Buyback, and New Cross-Holding Reduction Policy – It WAS a Trap
StubWorld: Toyota Group To Sell 10% of Denso; Adelson Selling LVS
Denso (6902 JP): US$4.0 Billion Secondary Offering and US$1.4 Billion Buyback
Japan – A Last Look at Shorts on Some Interesting Stocks & Positioning
Denso Corp Placement – Toyota to Raise US$4.4bn, as Expected
Quiddity JPX-Nikkei 400 Rebal 2024: End-Nov 2023
Santen Pharmaceutical (4536 JP): Strong H1 Performance; FY24 Guidance Raise; Rich Pipeline
Headline Is Eye Catching, but the Revised Voting Criteria Do Not Affect Most Companies
3Q Follow-Up – Golf Digest Online (3319 JP)

Huge Denso (6902) Secondary Sale by Toyota Group – Admiral Ackbar Says “It’s A Trap!”

Yesterday, Reuters reported that multiple Toyota Group companies would sell ~10% of Denso Corp (6902 JP) worth ¥700bn in a secondary share sale by year-end.
The sellers would be Toyota, selling down to just over 20%, Toyota Industries (6201) (selling down a bit more than half, and Aisin Seiki (7259 JP) selling its 2% stake.
Denso would buy back shares. This whole thing is both interesting and complicated so I discuss the interesting complications below. It looks bigger than it probably is.

Denso Offering, Buyback, and New Cross-Holding Reduction Policy – It WAS a Trap

15 minutes after I published what I thought was a considered analysis, Denso dumps the details. I thought it might be a trap. It looks like a trap.
A holistic view of the three different documents here suggests, indeed, “It was a trap”.
This giant offering is not bearish overhang but likely tilts bullish with greenshoe support, a large buyback, a new cross-holding reduction policy, and the follow-on effects from that.

StubWorld: Toyota Group To Sell 10% of Denso; Adelson Selling LVS

The Toyota Group of companies are proposing to reduce their holdings in Denso (6902 JP) by selling about 10% by year-end, in a share sale worth ~$4.7bn.
Preceding my comments on Toyota Industries (6201 JP) / Toyota Motor (7203 JP) – and Las Vegas Sands (LVS US) – are the current setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

Denso (6902 JP): US$4.0 Billion Secondary Offering and US$1.4 Billion Buyback

Denso Corp (6902 JP) announced a secondary offering of up to 294.8 billion shares (including overallotment) and a buyback (maximum shares of 125 million or maximum value of JPY200 billion).
Denso also announced a cross-holding reduction policy. In an unspecified timeframe, it will sell part of its holdings in Toyota Industries (6201 JP) and Aisin (7259 JP).
Looking at recent large Japanese placements is instructive to understand the potential offer price. The pricing date will fall between 13 and 18 December (likely 13 December).

Japan – A Last Look at Shorts on Some Interesting Stocks & Positioning

By Brian Freitas

There should be liquidity events on Persol Holdings, Hakuhodo Dy Holdings, Welcia Holdings, GMO Payment Gateway, CyberAgent, Kobayashi Pharmaceutical, NGK Insulators, Lixil Group, Kurita Water Industries and Keio Corp tomorrow.
On average, the stocks have underperformed the Nikkei 225 Index over the last 2-3 months but there has been near-term outperformance.
There has been a big increase in shorts on the stocks over the last couple of months and positioning varies across stocks.

Denso Corp Placement – Toyota to Raise US$4.4bn, as Expected

Following yesterday’s news release by Reuters that Toyota Motor (7203 JP) could sell up to 10% of Denso Corp (6902 JP), the deal was officially launched today.
Toyota is the company’s largest shareholder and its largest customer.
We have covered the deal background in our earlier note, Denso Corp Placement – Possible Placement by Toyota to Raise US$4.7bn. In this note, we talk about the final terms.

Quiddity JPX-Nikkei 400 Rebal 2024: End-Nov 2023

By Janaghan Jeyakumar, CFA

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 to come in August 2024 based on trading data as of end-November 2023.

Santen Pharmaceutical (4536 JP): Strong H1 Performance; FY24 Guidance Raise; Rich Pipeline

By Tina Banerjee

Santen Pharmaceutical (4536 JP) reported double-digit growth in revenue and core operating profit, and triple-digit growth in net profit in H1FY24. Overseas business grew 30% and remained the main driver.
Santen raised FY24 guidance for the second time due to the stronger-than-expected sales from overseas markets, reviewed impact of generics in Japan, and continued progress in company-wide cost optimizations.
Recently, the company has received European Commission approval for a new ophthalmic drug for lowering of intraocular pressure (IOP) in open-angle glaucoma and ocular hypertension.

Headline Is Eye Catching, but the Revised Voting Criteria Do Not Affect Most Companies

The “minimum majority of outside directors” is an eye catcher, but it does’t affect most companies because the 1/3 outside director ratio applies if a nominating committee is in place.
Since companies with majority of independent directors are 12.1% in prime market, the objective becomes to achieve the minimum requirement (1/3 INEDs), and few companies engage in further improving practices.
Companies with over 50% independent director have extremely superior market values in capitalization, ROE, ROA, and Tobin’s Q. Therefore, the acceleration of increasing independent director ratios should be seriously implemented.

3Q Follow-Up – Golf Digest Online (3319 JP)

By Sessa Investment Research

GDO announced 3Q cumulative (9M) FY23/12 consolidated financial results at 15:00 on Monday 11/13.
Headline figures were net sales +15.6% YoY (see PP2-4 for brief explanations by segment), EBITDA -4.4%, OP swung sharply into loss (see P5 for OP factor analysis by segment) due to GW etc. amortization, ordinary profit -73.8% due to the increase in interest expense in addition to the OP loss, and profit attributable to owners of parent -90.5%, mainly due to the disappearance of the extraordinary gain on debt forgiveness of the COVID PPP loan program in the US in Feb-2022.
As difficult market conditions in the domestic market are expected to continue, GDO revised down full-term FY23/12 guidance.

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Nov 29

Daily Brief Japan: Denso Corp, Asahi Group Holdings, ASICS Corp, Kaken Pharmaceutical, AViC and more

In today’s briefing:

Denso Corp Placement – Possible Placement by Toyota to Raise US$4.7bn
Denso Corp (6902 JP): Potential US$4.6bn Placement & Limited Passive Buying
Asahi Offering: Discount Presents a Good Entry Point As Price Hikes & Tax Reforms Strengthen Asahi
Asics (7936) | Stepping Ahead with New MTP
Kaken Pharmaceutical (4521 JP): Key Operating Parameters Weakened in H1; H2 Not Seem to Be Better
AViC (9554 JP) – Moving To Achieve Mission With a Better Hand

Denso Corp Placement – Possible Placement by Toyota to Raise US$4.7bn

As per Reuters, Toyota Motor (7203 JP) could look to sell up to 10% of Denso Corp (6902 JP) to raise around US$4.7bn before the end of the year.
Toyota is the company’s largest shareholder and its largest customer.
In this note, we will talk about the deal dynamics.

Denso Corp (6902 JP): Potential US$4.6bn Placement & Limited Passive Buying

By Brian Freitas

There could be a US$4.6bn secondary placement in Denso Corp (6902 JP) before year-end as Toyota Motor (7203 JP), Toyota Industries (6201 JP) and Aisin Corp (7259 JP) unwind cross-holdings.
Denso Corp (6902 JP) was down 4.85% yesterday (and even more intra-day) and the stock could remain under pressure for the next few weeks.
There will be limited passive buying in conjunction with the secondary offering and active investors will need to buy a lot of stock.

Asahi Offering: Discount Presents a Good Entry Point As Price Hikes & Tax Reforms Strengthen Asahi

By Oshadhi Kumarasiri

Two weeks ago, Asahi Group Holdings (2502 JP) revealed plans for a secondary offering, aiming to sell 33.48m common shares in international markets.
In this insight, we delve into the fundamentals of the business, identifying an opportunity if the offering is priced at a decent discount compared to Asahi’s current price.
We think recent price hikes and ongoing alcohol tax reforms position Asahi to outperform Kirin Holdings (2503 JP) in the next 3-4 years.

Asics (7936) | Stepping Ahead with New MTP

By Mark Chadwick

Asics unveils MTP with focus on financial milestones: 7-10% Sales CAGR to 660 billion yen and Operating profit of 80 billion yen by 2026.
The biggest risk to the MTP looks to be market share goals in the US. However, we think overall sales and margin targets are achievable.
The share price is up 80% YTD and stock is no longer cheap. However, plugging in the MTP assumptions into a DCF reveals further 17% upside

Kaken Pharmaceutical (4521 JP): Key Operating Parameters Weakened in H1; H2 Not Seem to Be Better

By Tina Banerjee

Kaken Pharmaceutical (4521 JP) reported 2% YoY decline in revenue H1FY24, while operating profit decreased 33% YoY. Top selling products are impacted by NHI drug price revision and increasing competition.
The company has reiterated FY24 guidance of flat revenue, 5% YoY decline in operating profit, and 23% YoY growth in net profit. Profitability is expected to deteriorate in H2.
Kaken is not expected to see any immediate respite as the small contribution from the new products will not compensate for the revenue loss from its top selling products.

AViC (9554 JP) – Moving To Achieve Mission With a Better Hand

By Sessa Investment Research

Touting a mission of “improving people, companies, and society through marketing,” AViC is involved in the commissioned handling of internet advertising and provision of SEO (search engine optimization) consulting services with the goal of providing high quality digital marketing services to clients with small- to medium-sized advertising budgets.
Having transformed FACT Inc., which offers support services for EC mall sales promotion optimization, into a wholly-owned subsidiary in October 2023, the company is also moving forward with mutually supplementing its lineup of services and conducting cross-sales to clients.
The company’s competitiveness comes from (1) the deep understanding of various media algorithms possessed by its management team, particularly the company’s representative who was the chief executive of the internet advertisement business at CyberAgent, and content backed by experience and a track record

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Nov 28

Daily Brief Japan: Asahi Group Holdings, T&K Toka Co Ltd, Recruit Holdings, Glosel , Arcs Co Ltd, TSE Tokyo Price Index TOPIX and more

In today’s briefing:

Asahi Group (2502 JP): The Current Playbook
T&K Toka (4636 JP): Bain Decision Time as Progress Made on a Pre-Condition
Recruit Holdings (6098) | 2024 High Conviction
Another Day Ending in Y, Another Low-Balled Takeover – This Time Glosel (9995)
Arcs’ Online Expansion with Amazon a Worry for Rakuten and Aeon
Unification of Quarterly Securities Reports with Financial Summary to TSE Is Generally Appropriate

Asahi Group (2502 JP): The Current Playbook

Since the US$1.3 billion secondary placement announcement, Asahi Group Holdings (2502 JP)’s shares are down -6.2% from the undisturbed price of JPY5,804 per share (16 November).
Looking at recent large Japanese placements is instructive to understand the potential trading pattern. So far, Asahi’s shares have followed the pattern of previous large placements.
The offering will likely be priced on 28 November. Investors participating in previous large Japanese placements tend to secure positive returns.

T&K Toka (4636 JP): Bain Decision Time as Progress Made on a Pre-Condition

T&K Toka Co Ltd (4636 JP) has satisfied the precondition of selling its Hangzhou Toka Ink stake to hold less than 30%. The offer is targeted for early January.
Due to Dalton’s stake building, the shares have consistently traded above Bain’s pre-conditional JPY1,400 offer. Bain can either launch the tender with unchanged terms or bump the offer.
A bump is likely as, despite the irrevocables, satisfying the minimum acceptance condition is challenging. The Board will struggle to recommend the offer if the shares remain above terms.

Recruit Holdings (6098) | 2024 High Conviction

By Mark Chadwick

We are bullish on Recruit at the current share price and believe that the stock has around 40% upside potential to our fair value estimate of Y7,700.
We believe that investors have been overly concerned with the cyclical slowdown in the job market as it normalizes from the post-Covid recovery
Indeed.com remains a disruptor in the HR recruiting market and the potential monetization of this asset is significantly under-appreciated by the market.

Another Day Ending in Y, Another Low-Balled Takeover – This Time Glosel (9995)

Today, Macnica Fuji Electronics Hol (3132 JP) (Macnica Holdings) announced that it would launch a tender offer to buy 100% of Glosel (9995 JP), a semiconductor trading company.
Glosel is special because it has three main assets. 1) 61% of net assets are inventory (<3mo), 2) 34% of net assets are net receivables (<3mos), 3) 8+% is securities.
For that, Glosel’s Board decided 0.71x book was OK. Nah. The register is reasonably wide open, and this is a delayed start. Someone might get noisy, but < 50/50 bet.

Arcs’ Online Expansion with Amazon a Worry for Rakuten and Aeon

By Michael Causton

Amazon Netsuper is competing head to head with Rakuten’s online food platform in an online food sector that has grown 80% in four years.
Last month Amazon confirmed that Arcs, one of the largest supermarkets in Japan and the biggest in northern Japan, will join Life, Valor and Seijo Ishii in using its system.
Arcs’ online supermarket was already growing strongly but the tie-up with Amazon will take it to the next level, helping to compete with Aeon and Rakuten.

Unification of Quarterly Securities Reports with Financial Summary to TSE Is Generally Appropriate

Since there’s little opposition to the argument that quarterly securities reports should no longer be mandatory, securities reports in 1Q/3Q are almost identical content to the disclosures to TSE.
To ensure the reliability of the financial statements submitted to TSE, which are replacing current statutory documents, the requirement of review by auditor could be a solution to the problem.
In this review, the addition of the cash flow statement and segment information in 1Q and 3Q financial statements is very useful and a step forward.

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Nov 27

Daily Brief Japan: Asahi Group Holdings, Zensho Holdings and more

In today’s briefing:

Asahi Group Placement – Follow Up – Shaping up for a Christmas Cheer
Zensho Placement – Good Price to Raise At, at Least for the Company

Asahi Group Placement – Follow Up – Shaping up for a Christmas Cheer

By Clarence Chu

A group of shareholders aims to raise US$1.3bn (JPY197.8bn) by selling their respective stakes in Asahi Group Holdings (2502 JP) via an extended secondary follow-on.
We have covered the background of the deal in our earlier note, Asahi Group Placement – Relatively Small One when Compared to Previous Large JP Secondary Selldowns.
In this note, we talk about the updates since and look at the performance of some of the past large Japan deals.

Zensho Placement – Good Price to Raise At, at Least for the Company

Zensho Holdings (7550 JP) aims to raise around US$300m via a public offering.
As per the company it will use the proceeds from the deal for potential M&A transactions.
In this note, we will talk about the deal dynamics and run the deal through our ECM framework.

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Nov 26

Daily Brief Japan: T&K Toka Co Ltd, TSE Tokyo Price Index TOPIX, JSR Corp and more

In today’s briefing:

T&K TOKA (4636 JP): Imminent TOB Launch? Imminent Bump Needed?
Investors Will Again Demand Concrete Measures to Raise ROE and Boost Shareholder Returns in FY3/2025
Last Week in Event SPACE: JSR, Prosus/Tencent, Hollysys, Tata Consultancy, Geely, EOFlow
Weekly Deals Digest (26 Nov) – JSR, Taisho, Origin, OreCorp, Eoflow, Hollysys, Zeekr, Tata Tech

T&K TOKA (4636 JP): Imminent TOB Launch? Imminent Bump Needed?

In August, T&K Toka Co Ltd (4636 JP) announced a TOB by Bain with a clearance hurdle of selling a 3.51% stake in Hangzhou Toka Ink (SH:688571) before launch.
Friday, the company announced that they put up a 3.6% stake for auction, with the sale to be executed that day. That likely triggers an early launch of the TOB.
The TOB Price is offensively cheap at 0.63x “official” book, and 0.53x book adjusted for equity affiliate price. The shares have traded through terms since launch. This should get bumped.

Investors Will Again Demand Concrete Measures to Raise ROE and Boost Shareholder Returns in FY3/2025

The carryback of pension obligations and expenses resulting from higher bond yields is a factor in the increase in operating profit.
While this’ll lead to higher EPS, which should lead to higher dividends and more room for stock price appreciation, there’s concern that inflating the B/S will lead to stagnant ROE.
In addition, since FY3/2024 profits will be boosted by pension financing factors unrelated to the core business, lower profit growth rate in FY3/2025 will put pressure on the stock price.

Last Week in Event SPACE: JSR, Prosus/Tencent, Hollysys, Tata Consultancy, Geely, EOFlow

Now the time decay to expected approvals and tender offer start for JSR Corp (4185 JP) are getting steep. Time to Fight The FUD.
The accretion trade is going to plan as Prosus NV (PRX NA) sells Tencent (700 HK); and Prosus and Tencent both back their own shares.
Hollysys Automation Technologies (HOLI US)‘s board capacity to sabotage calling an SGM has finally run out of puff.

Weekly Deals Digest (26 Nov) – JSR, Taisho, Origin, OreCorp, Eoflow, Hollysys, Zeekr, Tata Tech

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 – Asahi Group Holdings (2502 JP)‘s US$1.3 billion secondary offering; ZEEKR (ZK US), Tata Technologies (TATATECH IN) and Cainiao Smart Logistics Network (1437124D HK) IPOs
Event-Driven developments – JSR Corp (4185 JP), Taisho Pharmaceutical Holdin (4581 JP), Origin Energy (ORG AU), Orecorp Ltd (ORR AU), Eoflow (294090 KS), Hollysys Automation Technologies (HOLI US).

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Nov 25

Daily Brief Japan: Taisho Pharmaceutical Holdin, Zensho Holdings, Daiichi Kigenso Kagaku Kogyo and more

In today’s briefing:

Taisho Pharma (4581 JP) – Japan’s Newest Biggest MBO; The Price Is Light!
Zensho Holdings (7550) – ¥50bn Offering Is Not Meant For You
Taisho Pharmaceutical (4581 JP): MBO Tender Offer at JPY8,620
Daiichi Kigenso Kagaku-Kogyo (4082) – Navigating Business Expansion Challenges

Taisho Pharma (4581 JP) – Japan’s Newest Biggest MBO; The Price Is Light!

Just past the 22-year anniversary of the deal-break from a previous takeover involving the large OTC drug firm, Taisho Pharmaceutical Holdin (4581 JP) announced an MBO Takeover for the company.
Set at a 55.5% premium, it is not particularly surprising as a deal. The family is rolling in their interests. It looks like estate planning. The Board supports and recommends.
Unfortunately, like many recent MBOs, this one is light at 0.85 book where net cash, securities, and net receivables and inventory make up 68% of the takeover price.

Zensho Holdings (7550) – ¥50bn Offering Is Not Meant For You

Zensho Holdings (7550 JP) has had a great couple of years in share price movement. And this year is seeing earnings explode to new highs. M&A and FX.
Now they want to build a “war chest” equivalent to 4% of market cap to go do more M&A.
This seems opportunistic. And the shareholder register is extraordinarily lopsided. There is really only one buyer for this deal.

Taisho Pharmaceutical (4581 JP): MBO Tender Offer at JPY8,620

Taisho Pharmaceutical Holdin (4581 JP) has recommended an MBO tender offer of JPY8,620 per share, a 55.5% premium to the undisturbed (24 November).
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 66.67% ownership ratio.
Irrevocables represent a 40.31% ownership ratio. The minimum acceptance condition requires a 44% minority acceptance rate. The offer is attractive vs. historical and peer multiples.

Daiichi Kigenso Kagaku-Kogyo (4082) – Navigating Business Expansion Challenges

By Astris Advisory Japan

Q1-2 FY3/2024 results were in line with revised company guidance, highlighting progress in growing prioritized businesses in the Strategic Areas segment such as Healthcare.
However, the company is experiencing headwinds due to weakness in demand from the electronics sector and market divergence for EV battery cathode materials.
Volumes have also fallen more than anticipated YoY in the legacy Automotive Catalyst Areas.

💡 Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

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✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

Nov 24

Daily Brief Japan: Carenet Inc, Aeon Co Ltd, Watts Co Ltd, TSE Tokyo Price Index TOPIX and more

In today’s briefing:

CareNet (2150) – Watch the TOPIX Birdy (Smallcap)
Aeon and Seven & I to Create Ecosystems Via Financial Services
Watts Finally Reacts to Margin Squeeze
Women’s Many Part-Time Jobs, Few Managerial Positions, and Short Tenure Are the Same Rooted Problems

CareNet (2150) – Watch the TOPIX Birdy (Smallcap)

Carenet Inc (2150 JP) is a “medical contents” provider. It acts as a distributor of information to doctors and medical practitioners over the internet, and also consults with pharmaceutical companies.
On Wednesday, they announced that they were going to move from TSE Growth to TSE Prime as of 29 November.
At ¥31bn market capand this may turn people off, but it may be a treat for some. There is a reason why there are some big holders.

Aeon and Seven & I to Create Ecosystems Via Financial Services

By Michael Causton

Aeon and Seven & I both have large financial services arms, generating a substantial share of consolidated profits.
With cashless payments now the norm, the old business models that relied on fees for cash dispensing are fast becoming outdated.
Both retailers plan major changes to create ecosystems that should deliver a lot more data to improve targeted marketing for e-commerce and retail stores.

Watts Finally Reacts to Margin Squeeze

By Michael Causton

The ¥100 Shop chains are facing higher COGS on one side and rising wages on the other, a problem when you run a fixed price chain at just ¥100.
Most (except Seria Co Ltd (2782 JP)) have reacted by introducing new, higher priced lines led by Daiso.
Watts, the smallest chain, is now catching up and higher priced lines will make up a third of stock by 2027.

Women’s Many Part-Time Jobs, Few Managerial Positions, and Short Tenure Are the Same Rooted Problems