Japan

• 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.

• 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.

• 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.

• 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). 

• 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 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 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.

• 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. 

• 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 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.

• 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.

• The same problem underlies the fact that women are more likely to be part-time/ non-regular workers, as well as the lower percentage of management positions and shorter length of service.
• Setting targets and implementing measures for % of female managerial positions is important, since the higher ratio will narrow the gender wage gap, but this alone is not sufficient.
• It’s necessary to ensure that women have the same position in workplace even if they leave the workforce, and to change social systems and people’s mindset to support child care.

• Many months ago I suggested the JIC Tender Offer JSR Corp (4185 JP) was not overwhelmingly high-priced, but that it would be “heavy” for months to come. 
• FUD and Flows would widen the spread. And they did.
• Now the time decay to expected approvals and tender offer start are getting steep. Time to Fight The FUD.

• JSR Corp (4185 JP)’s pre-conditional tender offer from JIC is conditional on several regulatory approvals, notably China SAMR approval. JIC can waive the conditions precedent.
• A takeaway from the Broadcom (AVGO US)/VMware Inc Class A (VMW US) SAMR clearance is that if JIC is willing to commit to restrictive conditions, SAMR approval can be obtained.
• On 6 November, JSR reiterated a late December tender start. However, with time fast running out, the likely scenario is SAMR conditional approval with a delayed tender start.

• We once called Uniqlo the Toyota of clothing. And this remains apposite. Its consistent, reliable quality, focus on supply chain efficiency, and increasingly global renown make it a solid bet.
• The majority of the growth last year came from overseas markets, including even the US and Europe and the appointment of Daisuke Tsukagoshi as president will boost overseas performance further.
• Fast Retailing is talking up the potential of GU, which should make up for lower domestic growth from Uniqlo but also now thinks it can make it a global brand.

• Asahi Intecc (7747 JP) is poised for multi-year growth through strong market demand for its technically superior guidewires, market leadership positioning, new product launches, and direct marketing initiatives.
• In FY24, Asahi Intecc aims to achieve revenue of ¥100B (+11% YoY), a significant milestone. The company targets revenue of ¥110B and an operating profit margin of 23–25% in FY26.
• Asahi Intecc is expected to be a continued beneficiary of global procedure volume recovery. The company is likely to achieve its medium-term business plan ahead of schedule.

• Panasonic Holdings Corporation (PHD) is entering a strategic partnership with Apollo Global Management, involving the partial sale of its ownership in Panasonic Automotive Systems Corporation (PAS).
• PAS, historically known for car stereos and navigation systems, has expanded into automotive electronics, holding approximately 15% of the global Automotive Digital Cockpit market with $3.6 billion in sales.
• Despite a bearish view on Panasonic, this deal is seen as a positive step toward streamlining the group structure and concentrating on core, sustainable growth areas.

• Since the list of companies disclosing information based on TSE’s request only shows “whether they disclosed,” more companies will disclose the information in their corporate governance reports by December anyway.
• Good practices published by TSE will provide hints for companies to improve their future disclosures. Investors will also be more likely to demand improvements from companies based on good practices.
• The next step after disclosing the cost of capital is whether companies can disclose measures to fill gap between cost of capital and actual return and to raise return further.

• Kantsu is a logistics company that supports the high-growth e-commerce industry, specializing in warehouse logistics and handling the entire upstream logistics process, from order processing to delivery.
• The company is also creating a highly profitable business by selling its in-house developed IT system that boosts efficiency to external customers.
• In 1H FY24/2, Kantsu reported net sales of ¥5,619 mn (+10.0% YoY), operating profit of ¥164 mn (-14.1% YoY), ordinary profit of ¥162 mn (-7.4% YoY), and profit attributable to owners of the parent of ¥115 mn (+2.3% YoY).

• Upside risk to company guidance – Q1-3 FY12/2023 results were ahead of guidance and a positive surprise in our view.
• Operating profit grew 25.8% YoY, driven by a major improvement in profitability in the Advertising segment, continued robust demand for ESG services, and management’s prudent cost control (with SG&A margins stable YoY).
• The mainstay Premium Benefits Club service saw 2 net additional customers QoQ for Q3 FY12/2023, rising to 89 customers – the service is experiencing a positive trend of demand from an increasing number of retail shareholders, and a hike in spending by companies on shareholder benefits program. 

• Back on 30 October, Daito Trust Construct (1878 JP) announced a large earnings, a new Shareholder Return policy, a higher payout this year, and a big buyback. 
• It said the buyback period would start two days later, but they did not specify the method (Daito Trust Construction (1878) – Big Buyback, Dense Register, 120% Payout This Year 
• Today they announced a ToSTNeT-3 purchase for “the whole size”, which is accompanied by a “Japan-style ASR.” Know your details.

• Today after the close, noted Japanese battery maker Gs Yuasa Corp (6674 JP) announced a public equity offering accompanied by a 3rd party placement to Honda Motor (7267 JP). 
• Total $300mm+ raise is nearly 20.0mm shares against ~80mm shares out now. That’s 20% EPS dilution at a still-decent discount to book value.
• This creates a weird situation of a low ROE stock becoming lower ROE, at a lower PBR, with “more growth ahead” in a hyper-competitive space.

• Gs Yuasa Corp (6674 JP) (GSY) is looking to raise around US$240m via a public offering, along with placing shares via third-party allotment with Honda Motor (7267 JP) .
• The company formed a JV with Honda Motors earlier this year and will use the bulk of the proceeds for investments in the JV.
• In this note, we will talk about the deal dynamics and run the deal through our ECM framework.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Lippo Karawaci
• Softbank Group
• Xiaomi Corp

• AZ-Com Maruwa Holdings (9090 JP) is looking to raise around US$206m in its mixed follow-on offering. 
• The deal will be a large one to digest, at 129 days of three month ADV, 5.5% dilution and 12.2% of current mcap.
• In this note, we will talk about the deal dynamics and run the deal through our ECM framework.

• Major change of gameplan – Q1-3 FY12/2023 results were weaker than expected with the company revising down FY guidance, and withdrawing both current medium and long-term plans given highly challenging business conditions.
• An overview plan of structural reforms has been unveiled, focusing on becoming a more resilient and profitable business, realigning product lines, and rebuilding sales and production setups.
• Although an ambitious initiative with a wide scope, we believe that this will have a positive impact of significantly accelerating transformation initiatives, and transitioning the company to a more optimal business model.

• TSE suggests presenting management strategies without sticking to the medium-term management plan, but the “medium-term management plan briefing” is the only opportunity to hear management policies from the company.
• The primary reason why companies whose stock prices outperform even though they don’t publish medium-term management plan are founding-family companies is that their interests align with those of their shareholders.
• To align management with shareholders, it was also necessary to require CEOs with low stock ownership to increase the ratio of variable compensation and adopt stock grants in director compensation.

• On 16th November 2023, Tokyo-based Industrial-use precious metal products manufacturer Furuya Metal (7826 JP) announced they would be moving from TSE Standard to TSE Prime on 6th December 2023.
• This move would trigger a TOPIX Index Inclusion event at the end of January 2024 which would require all the TOPIX-tracking passive funds to buy shares in the company.
• The company also launched an offering in conjunction with the TSE Prime announcement. In this insight, we take a look at the flow dynamics of the upcoming TOPIX Inclusion event.

• Pasona Group (2168 JP) is massively net cash. And it’s ofloading Benefit One Inc (2412 JP). Though we don’t know what the future holds, Pasona is the wrong price.
• ENN Energy (2688 HK) controlling shreholder announced it intends to increase it stake. And it’s been in the market almost everry day since the interims. 
• Zhejiang Expressway (576 HK) announced its rights offering. It’s at a long-term low price, and about to earn a long-term high net income, and have a long-term high payout ratio

• I tally 41 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
• Six new deals were discussed this week: Benefit One  (2412 JP), Japan Best Rescue System (2453 JP), IJTT (7315 JP), Ohizumi (6618 JP), Amara (AMA SP), and Atlantic Lithium (A11 AU).
• Key updates took place for: VNET (VNET US), Eoflow (294090 KS), Azure Minerals (AZS AU), Origin Energy (ORG AU), Haitong International Securities Group (665 HK) and Shidax Corp (4837 JP).

• 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 Benefit One Inc (2412 JP), Japan Best Rescue System Co (2453 JP), Eoflow (294090 KS), Haitong International Securities Group (665 HK), Vinda International (3331 HK), Amara Holdings (AMA SP).

• Rakuten Bank shares have experienced something of a re-rating, but we believe it has further to go, with attractive fundamentals and relatively undemanding valuations compared to its digital peers
• Rakuten Bank is well positioned to benefit from the tailwind of the steepening yield curve in Japan, with its low LDR, growing loan book and healthy capital ratio
• It is leveraging off the Rakuten Group eco-system; not only is it growing its client base, but also nearly a third of clients use Rakuten Bank as their primary bank

• Since Corporate Governance Code limits disclosures on climate change to prime market companies, it’ll encourage the transition from Prime to Standard market and discourage the transition from Sandard to Prime.
• While it’ll be interesting to see how many years “Scope 3” disclosures will be mandatory, more attention will be paid to how companies uses the cash from reducing policy shareholdings.
• Although the situation is different than it was in 2000 because few companies are underfunded, attention should be paid to whether retirement benefit trusts will become a refuge for policy-shareholdings.

• As discussed here in a piece about the Partial Tender Offer, Pasona Group (2168) has agreed to sell its controlling stake in Benefit One (2412) to M3 (2413).
• That will leave Pasona Group with a fair chunk of cash and possibly a residual stake in Benefit One, depending on the results.
• Though we don’t know what the future holds, Pasona now is the wrong price for its future. 

• Asahi Group Holdings (2502 JP) today announced a collection of 10 shareholders (mostly financial institutions) would sell a total of 33.48mm shares (6.6% of shares out) in Asahi Group. 
• This will become more of a thing going forward. Cross-holders “want” to unwind. And in many cases, the cross-held want to buy back stock (reduce E, raise ROE).
• This deal is “good” in that it clears out a lot of the bank cross-holders in one fell swoop. But there are more crossholders behind.

• A group of shareholders are looking to raise US$1.3bn (JPY197.8bn) by selling their respective stakes in Asahi Group Holdings (2502 JP) via an extended secondary follow-on.
• The deal would represent 23 days of Asahi’s three month ADV. Its latest extended large primary deal has done very well.
• While the deal isn’t particularly well flagged, it is an extended one allowing the market to price in the impact of the share sale. 

• Nine shareholders are looking to sell 33.48m shares of Asahi Group Holdings (2502 JP). That is US$1.28bn, 24x ADV and 6.6% of shares outstanding.
• Given the recent run up in the stock, there could be downside over the next couple of weeks ahead of the pricing date.
• There will be buying from global trackers but nothing from TOPIX trackers, so not a lot of stock will be mopped up. Passive buying before settlement could create a squeeze.

• Asahi Group Holdings (2502 JP) announced a pure secondary offering of 33.5 million or 6.61% of outstanding shares. At the last close, the placement was worth JPY194 billion (US$1.3 billion).
• Notwithstanding Asahi’s explanation, the selling shareholders’ motivation for exiting their shareholding is likely to capitalise on the strong share price performance – Asahi shares are up 45% YTD.
• Looking at recent large Japanese placements is instructive to understand the potential offer price. The pricing date will fall between 28 November and 1 December (likely 28 November).

• Nippon Paint Holdings (4612 JP) announced a better-than-expected 3Q23 results this week, mainly driven by a resilient China decorative paint business. 
• The company also raised 2023 operating profit guidance, expecting around 6% higher operating profit (Y168bn from Y158bn previously).
• At 21x forward PE, the company is attractively valued given the growth profile and strong market share position in most end-markets. 

• ROE is now 24.4% in 1H24 compared with 18.0% last year. ROE consistently rising well, from 15.9% in FY21.
• Quarterly net profit up 47% YoY in 2Q24. On an annualized basis, net profit in FY24 can show considerable delta from FY23, a year when returns and profit were good.
• Costs are well-contained. SG&A to assets was 23.7% at its recent peak and now it’s 20.8%. SG&A to revenue is now 55.5% compared with 65.3% at its recent peak.

• In H1FY24, Takara Bio Inc (4974 JP) reported 41% YoY decline in revenue to ¥19.1B, dragged by 46% YoY decrease in revenue from reagents, which contributed 78% of total revenue.
• Operating profit plunged 87% YoY to ¥1.4B, 28% ahead of guidance, due to lower-than-expected R&D expenses. Net profit decreased 87% YoY to ¥1.1B, 67% higher than the guidance.
• Takara Bio has cut FY24 sales, operating profit, and net profit guidance by 15%, 63%, and 64%, respectively, as the company is anticipating a sluggish life science R&D market globally.

• Q1-2 FY3/2024 results demonstrated robust growth by Geniee with sales growth of 23.7% YoY and operating profit growth of 99.9% YoY.
• The Marketing SaaS segment has seen robust sales growth and margin improvement YoY, paving the way for a resilient earnings stream going forward.
• However, given a weaker-than-expected outlook for the advertising market both domestically and overseas, the company has lowered FY3/2024 guidance whilst maintaining its medium-term guidance range for FY3/2026.

• Earnings Trends: 1Q FY24/5 results were solid, with steady sales and improved gross profit margins.
• Profit growth was limited owing to higher SG&A expenses in absolute terms stemming from hiring personnel, higher wages, and the inclusion of SG&A expenses of Ohba Research and Land Surveys.
• However, the company is likely to see more benefits from the steady accumulation of orders and continuous improvement in gross profit margin from 2Q onward, when it becomes easier to secure sales volume owing to the seasonality of its business.