In today’s briefing:
- Tokyo Electron (8035 JP): Why the Big Downward Revision?
- [Japan M&A] Fujitec (6406) PE Bid Not Super High But May Be Tough To Beat
- [Japan M&A] Krosaki Harima (5352) Takeout by Parent Nippon Steel – Cheapish But Done
- Dentsu Group (4324 JP): Global Index Deletion Likely
- Sumitomo Pharma (4506 JP): Orgovyx, Gemtesa Strong; Promise in Oncology and Regenerative Line Up
- Will the Incorporation of TSR into the Remuneration System Affect Cash Allocation?
- Otsuka Holdings (4578 JP): Better-Than-Expected 1H Performance Leads 2025 Guidance Raise
- Ricoh Leasing (8566 JP): Q1 FY03/26 flash update
Tokyo Electron (8035 JP): Why the Big Downward Revision?
- Tokyo Electron’s share price dropped 18% on Friday following the announcement of weak Q1 results and a huge downward revision to H2 FY Mar-26 guidance.
- Push-Outs and/or cancellations of orders due to the uncertainty caused by President Trump apparently caught managment by surprise. Costs also rising as management ramps up capex and R&D.
- Impact of Trump’s yet-to-be-announced tariffs on semiconductors is still unknown, but 15% base rate on Japan already a negative.
[Japan M&A] Fujitec (6406) PE Bid Not Super High But May Be Tough To Beat
- On 30 July, Fujitec Co Ltd (6406 JP) and Swedish PE Firm EQT announced a deal to acquire the company with the Uchiyama family. Two activists signed tender agreements.
- The deal is not expensive IF you underwrite strong profitability growth and assume the large net receivables position can be better addressed.
- But the stock is trading tight to terms and there are 6+ months until you get your money.
[Japan M&A] Krosaki Harima (5352) Takeout by Parent Nippon Steel – Cheapish But Done
- On Friday 1 August, Nippon Steel Corporation (5401 JP) and subsidiary Krosaki Harima (5352 JP) announced the parent would buy out the sub at ¥4,200/share.
- This seems light given the structure of the balance sheet (lots of net receivables – a bunch against the buyer) but it would be awfully tough to see this broken.
- As it is a long-dated deal, I expect it trades too tight early on, then may flatten or fade.
Dentsu Group (4324 JP): Global Index Deletion Likely
- The drop in Dentsu Inc (4324 JP)‘s stock price over the last few months could lead to the deletion of the stock from a global index in August.
- Dentsu Inc (4324 JP) has underperformed its peers over the last year and trades cheaper than the average of its Advertising peers.
- There is positioning in Dentsu Inc (4324 JP), though it is likely to be smaller than the estimated passive selling. A relative selloff could be used to enter the stock.
Sumitomo Pharma (4506 JP): Orgovyx, Gemtesa Strong; Promise in Oncology and Regenerative Line Up
- Sumitomo Pharma (4506 JP) reported 19% YoY (negative Fx impact of 7%) revenue growth during Q1FY26 to ¥108B, mainly driven by North America.
- Orgovyx witnessed growth in medicare patients due to reduction in out-of-pocket caps and Gemtesa on the other hand improved market share employing price focussed strategy.
- Sumitomo Pharma is well on track moving ahead of the significant losses suffered in FY23 and FY24, focusing on expanding revenue, reducing costs, and securing future business drivers.
Will the Incorporation of TSR into the Remuneration System Affect Cash Allocation?
- With nearly half of companies listed on TSE having a P/B ratio of less than 1, many investors are likely to question the appropriateness of executives receiving fixed remuneration.
- Incorporating TSR into the compensation system will likely motivate companies to increase shareholder returns, which is a good thing if it leads to the return of unused cash to shareholders.
- As long as fixed compensation remains high, there won’t be much incentive to put a lot of cash into growth investments that boost corporate value.
Otsuka Holdings (4578 JP): Better-Than-Expected 1H Performance Leads 2025 Guidance Raise
- Otsuka Holdings (4578 JP) sees 7% revenue growth in 1H25, despite negative Fx impact. Mainstay pharmaceutical business (+9% YoY) drove revenue. Rexulti and Abilify franchise were strong.
- Otsuka kept 2025 revenue guidance unchanged, the company raised guidance for business, operating, and net profits for 2025 mainly due to lower than anticipated operating expenses due to Fx impact.
- Otsuka stated that pharmaceutical business has no impact by additional US tariffs. Two top selling drugs are steadily gaining traction. Going ahead, new launches should further drive growth.
Ricoh Leasing (8566 JP): Q1 FY03/26 flash update
- Revenue increased by 8.9% YoY to JPY82.4bn, while operating profit decreased by 3.4% YoY to JPY4.9bn.
- SG&A expenses rose 17.5% YoY to JPY7.3bn, influenced by investments in human resources and IT infrastructure.
- Total operating assets increased 8.6% YoY to JPY1.24tn, driven by growth in finance and operating leases.
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