In today’s briefing:
- Softbank Confirms BABA Selldown – Big Changes on Softie’s Balance Sheet and BABA Index Implications
- Softbank Group Shock Settlement of Forward Alibaba Contracts Is Worrisome
- Shinoken (8909) MBO – Decent Premium, Still Light, Will Someone Push?
- Looking at Canon Buyback Dynamics History – Patterns Vs Peers Gives Execution Hints
- Kirin: With Myanmar in the Rear-View Mirror, an Additional 30% Upside Is Quite Possible
- Toshiba – Little Good News
- Rakuten (Neutral) – Q2 22 Results Reaction: Mobile Losses Narrow but Little Good News Beyond That
- Denso (6902) | No Reason to Be Uber-Bearish
Softbank Confirms BABA Selldown – Big Changes on Softie’s Balance Sheet and BABA Index Implications
- Softbank today confirmed that the stories circulating about Softbank having hedged a decent portion – 200+mm shares – of its BABA position were true.
- The market expectation had been that these pre-paid forwards would be held for another two years. The announcement today is that they will be physically settled early.
- This means the entire accounting effect – worth ¥4.6trln – will hit the income statement (and balance sheet) in the current quarter. There are investment and index implications
Softbank Group Shock Settlement of Forward Alibaba Contracts Is Worrisome
- Softbank will settle all of its forward derivative contracts on Alibaba by the end of September, representing 242mn ADRs. Some had years to run so this is truly surprising
- We estimate Softbank Group (9984 JP) raised $35b selling BABA-linked derivatives since mid-2020, which would imply average proceeds per ADR of $145 versus the $91 it trades at now
- But early settlement also has us wondering when the other show will drop and if that is related to global tech, China or Alibaba specifically
Shinoken (8909) MBO – Decent Premium, Still Light, Will Someone Push?
- Today Shinoken Group (8909 JP) announced it was the subject of an MBO where the CEO-founder invited Integral – a local PE fund – to help him restructure and grow.
- It is at a 45% premium to last, and management negotiated the price from a relatively insulting initial bid of ¥1,300 to ¥1,600 in the end, but it’s still light.
- It is not hugely light, but it is not a full price. It could definitely be a bit higher. The question is whether active foreigners will push.
Looking at Canon Buyback Dynamics History – Patterns Vs Peers Gives Execution Hints
- Canon Inc (7751 JP) has just started its 17th buyback in 15 years. Like the 16 before, this one is for ¥50bn.
- The patterns/dynamics of the canon buybacks in the past are remarkable when compared to buybacks of other companies.
- There are outperformance and under-performance patterns vs Peers, and it is worth taking note if you have a position to trade.
Kirin: With Myanmar in the Rear-View Mirror, an Additional 30% Upside Is Quite Possible
- Kirin Holdings (2503 JP)’s 2Q22 normalized OP of ¥46.2bn from ¥500.3bn revenue was slightly above the consensus OP of ¥45.9bn from ¥500.8bn revenue.
- Kirin raised its 2022 revenue and normalized OP guidance by ¥40.0bn and ¥6.0bn respectively, due to the progress of profit improvement measures mainly in Coke-Northeast and Kyowa Kirin in 1H22.
- Meanwhile, Kirin is due ¥22.4bn from MEHL for the Myanmar JV. Even though this is not the fair value, receiving at least something is a bonus in our opinion.
Toshiba – Little Good News
- Toshiba reported 1Q results today missing at both the revenue and OP lines.
- While revenue was barely above consensus the company generate a ¥4.8bn operating loss rather than the ¥22bn OP consensus was projecting.
- 1Q is seasonally weak so the loss itself would not be concerning except for how widespread deterioration was.
Rakuten (Neutral) – Q2 22 Results Reaction: Mobile Losses Narrow but Little Good News Beyond That
- Mobile losses narrowed sequentially as expected but not by much as the company missed consensus and Redex expectations for profitability
- Rakuten also reported a 220K net subscriber loss in the quarter as point-chasing free users churned off when zero-yen tiers were cancelled but worringly, network coverage/capacity was also a factor
- If there is a silver lining, fintech businesses Rakuten Bank and Securities posted solid results and remain on pace to IPO but negative mobile sentiment is unlikely to change
Denso (6902) | No Reason to Be Uber-Bearish
- Denso started the fiscal year with an overly optimistic view of Toyota production – it is now too bearish
- Chip shortages and supply disruptions are starting to ease, making it easier for automakers to meet end demand
- We are bullish on the stock as we believe that Denso’s earnings will beat lowered guidance and valuations are at the bottom of the range
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