In today’s briefing:
- [Japan M&A] Paramount Bed (7817 JP) Founding Family Takeout – Too Cheap, Deserves Activist Response
- Paramount Bed Holdings (7817 JP): Another MBO Susceptible to Activism
- Tekscend Photomask (429A JP) IPO: The Bull Case
- Mandom (4917 JP): Two Is a Company as Murakami Joins the Fray
- Mitsui & Co. (8031.T): Copper-LNG Torque Driving a Rerating
- Tekscend Photomask IPO – The Positives – Strong Market Position
- Shiga Bank (8366 JP): High Capital, Low Valuation – Positioned to Ride Japan’s Banking Recovery
- Kioxia (285A JP): Storage Name Still Cheap; Enterprise SSDs Anchor Recovery
- Nippon Steel Placement – Relatively Small Deal with Recent Pick-Up in Momentum
- Long Toyota (7203 JP) Vs. Short Suzuki (7269 JP): Statistical Arbitrage, 9% Mean-Reversion Upside
[Japan M&A] Paramount Bed (7817 JP) Founding Family Takeout – Too Cheap, Deserves Activist Response
- In a fairly common pattern, the founding family (38% ownership) of Paramount Bed Holdings Co Lt (7817 JP) have launched an MBO.
- It is too cheap at 4.2x adjusted EV/EBITDA (one could argue it is 5.0x but they also have net receivables) for such a ubiquitous brand and growth.
- Soft99 Corp (4464 JP) may have been a one-off. Maybe not. People may look at this situation through that lens. It deserves that look.
Paramount Bed Holdings (7817 JP): Another MBO Susceptible to Activism
- Paramount Bed Holdings Co Lt (7817 JP) has recommended an MBO at JPY3,530, a 32.2% premium to the last close price. The offer represents a ten-year high.
- The offer is below the midpoint of the special committee IFA’s DCF valuation range and its requested price. Hibiki has previously suggested an intrinsic value of JPY4,929.
- The setup shares several traits with the Mandom MBO, and has the potential for a bump, particularly if an activist emerges as a substantial shareholder or agitates for better terms.
Tekscend Photomask (429A JP) IPO: The Bull Case
- Tekscend Photomask (429A JP) is a global leader in semiconductor photomasks. It is seeking to raise up to JPY123 billion (US$832 million). Pricing is on 30 September.
- Tekscend, which was carved out of Toppan Printing (7911 JP) in 2022, is owned by Toppan (with a 50.1% stake) and Integral (5842 JP) (with a 49.9% stake).
- The bull case rests on its leading market position, attractive market opportunity, stable underlying margins, net cash position, and attractive dividend policy.
Mandom (4917 JP): Two Is a Company as Murakami Joins the Fray
- Murakami reported a 7.14% ownership ratio in Mandom Corp (4917 JP). The average buy-in price of JPY2,070.73 per share is 5.6% above the JPY1,960 CVC-sponsored MBO.
- Murakami undoubtedly shares Hibiki’s concerns. On 15 September, Hibiki issued an open letter questioning the rationale behind the Board’s recommendation of a CVC-sponsored preconditional MBO.
- With the emergence of Murakami, CVC and the founding family’s options narrow. The need for satisfaction of the precondition buys time, but a bump seems inevitable.
Mitsui & Co. (8031.T): Copper-LNG Torque Driving a Rerating
- Copper earnings leverage: Equity-method stakes in Collahuasi and Anglo Sur mean every +10% copper move adds ~¥25–30 bn net income (~3% EPS), giving Mitsui underappreciated upside torque.
- LNG stability & cash flows: Long-term contracts in Mozambique, Cameron, Qatar, and Sakhalin underpin resilient earnings and support ¥400 bn annual buybacks (~5% equity).
- Valuation: P/B discount vs Itochu has closed (~1.1× each), but Berkshire’s ≥10% stake enforces capital discipline; TSR outlook is 6–9% CAGR through FY28, with copper strength providing double-digit upside.
Tekscend Photomask IPO – The Positives – Strong Market Position
- Tekscend Photomask (429A JP) (TP), a manufacturer and distributor of semiconductor photomasks, aims to raise around US$830m in its Japan IPO.
- TP is a global provider of photomasks and related support services. It has been the leader in the merchant photomask market in terms of sales since 2016.
- In this note, we talk about the positive aspects of the deal.
Shiga Bank (8366 JP): High Capital, Low Valuation – Positioned to Ride Japan’s Banking Recovery
- Shiga Bank is well-leveraged to Japan’s rate hike cycle and regional revitalization strategy, with higher market-rate loan exposure than peers, enabling stronger earnings sensitivity to rising rates.
- Core profitability is improving, driven by double-digit NII growth and rising NIMs. A CET1 ratio of 14.0% supports capital returns, selective M&A, and ¥700bn in planned loan growth through 2029.
- Despite a +63% YTD rally, shares remain undervalued at 0.7x P/B. Our target of ¥7,850/share implies ~+20% upside, supported by improving RoE, operational efficiencies, and capital deployment.
Kioxia (285A JP): Storage Name Still Cheap; Enterprise SSDs Anchor Recovery
- Cycle turning: Q1 FY25 marked the trough; Q2 guidance implies +30% revenue and +46% OP rebound, with Q3 set to extend the recovery.
- Enterprise SSDs anchor profits: ~70–75% of EBITDA tied to AI/cloud workloads, cushioning volatility in PCs and smartphones.
- Even after a ~50% rally since September, Kioxia trades at ~5–6× EV/EBITDA vs. peers at 9–12×; sponsor selldowns and NAND ASP volatility could test the rally.
Nippon Steel Placement – Relatively Small Deal with Recent Pick-Up in Momentum
- POSCO Holdings (005490 KS) is looking to raise up to US$169m via selling some of its stake in Nippon Steel Corporation (5401 JP).
- This deal represents 1.5 days of ADV representing around 0.7% of shares outstanding.
- In this note, we will talk about the placement and run the deal through our ECM framework.
Long Toyota (7203 JP) Vs. Short Suzuki (7269 JP): Statistical Arbitrage, 9% Mean-Reversion Upside
- Context: The Toyota Motor (7203 JP) vs. Suzuki Motor (7269 JP) price-ratio has deviated more than two standard deviations from its one-year average, presenting a potential relative value opportunity.
- Highlights: Going long Suzuki and short Toyota targets a 9% return.
- Why Read: Essential for quantitative traders seeking mean-reversion opportunities, with detailed execution framework, risk management protocols, and historical simulation showing the statistical basis for this relative value play.
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