Daily BriefsIndustrials

Industrials: Fanuc Corp, Nishimatsu Construction Co, Toshiba Corp, Asia High Yield Bond Index, AirAsia Group Bhd and more

In today’s briefing:

  • Fanuc – Could There Be a Shock Downgrade?
  • Nishimatsu Construction – Tender Completed, Overhang Commences
  • Toshiba (6502 JP): Nanoimprint Litho Could Add Value to Kioxia, but Not Soon
  • Macro; Rating Changes; New Issues; Talking Heads; Top Gainers and Losers
  • Rescue Plan for TAA

Fanuc – Could There Be a Shock Downgrade?

By Mio Kato

The FA sector has enjoyed a few strong quarters as COVID helped kickstart an earnings upcycle that was about due regardless. Despite this, stock prices have been flattish or weak for most names this year excluding the invincible Keyence. While peer Yaskawa upgraded its earnings guidance when it reported we have some concerns about Fanuc.

Nishimatsu Construction – Tender Completed, Overhang Commences

By Travis Lundy

One month ago, Nishimatsu Construction Co (1820 JP) launched a Tender Offer to buy back 27.42% of shares out in an Own Share Tender Offer. 

The primary goal, of course – as it often seems to be in own share tender offers in Japan which are conducted around market price – was to have the company rid itself of the Murakami-related shareholders while “returning capital to shareholders and raising ROE.”

They were aiming to buy back 15 million shares. They got offers to buy back 21.1 million shares. 

I discussed the situation in Nishimatsu Construction (1820) About to Do Its Last Buyback for a While, and You Can’t Participate! when it was announced. 

The deal was announced at a relatively high price – near a 20yr high – and the shares stayed in place during the deal. 

The results announced yesterday after the close were interesting. 

I had suggested that as many as 20.5mm shares could tender against the 15mm share buy. It turns out to have been 21.11mm shares tendered, which means that pro-ration was only 71%. 

The Deemed Dividend, which made this entire situation quasi un-investable for foreign shareholders, came out at ¥2,856.63 I am told (I had my ballpark guesstimate at ¥2,786-2,846 which is close enough for horseshoes and hand grenades and Deemed Dividend guesstimates).

And the results tell you some interesting things. More below.

Toshiba (6502 JP): Nanoimprint Litho Could Add Value to Kioxia, but Not Soon

By Scott Foster

In this morning’s news: “Merger talks between Western Digital and Kioxia stall” (Reuters, October 22, 2021, updated 9:07 a.m. JST). It is yet not clear how serious this might be.

On October 19, the Nikkei reported that Toshiba affiliate Kioxia, Canon (7751) and Dai Nippon Printing (7912) are aiming to use nanoimprint lithography in Kioxia’s NAND flash memory production in 2025.

The potential savings in terms of equipment and operational costs could be great enough to give Kioxia a competitive advantage. It would also justify years of development and give Canon and Dai Nippon Printing important new products.

But 2025 is a long time from now and technical hurdles remain. For the time being, more immediate issues are likely to move the stocks. 

LightStream’s Mio Kato continues to see upside potential for Toshiba, but primarily as an exit opportunity (see Toshiba – Possibility of a Kioxia-Western Digital Deal )

Macro; Rating Changes; New Issues; Talking Heads; Top Gainers and Losers

By BondEvalue

US equities had a positive day with the S&P up 0.3% and the Nasdaq was up 0.6%. Sectoral gains were led by Consumer Discretionary, up 1.4% while Energy dragged the index, down 1.8%. US 10Y Treasury yields were up 4bp to 1.70%. European stocks were lower with the DAX, CAC and FTSE down 0.3%, 0.3% and 0.5% respectively. Brazil’s Bovespa was down 2.8%. In the Middle East, UAE’s ADX was closed while Saudi TASI was up 0.3%. Asian markets have opened broadly higher –  HSI, STI and Nikkei were up 0.5%, 0.6% and 0.3% respectively while Shanghai was down US 0.3%. US IG and CDS spreads were 0.4bp wider and HY CDS spreads were 3bp wider. EU Main CDS spreads were 0.2bp wider and Crossover CDS spreads were 3.3bp wider . Asia ex-Japan CDS spreads widened by 1bp.

Rescue Plan for TAA

By TA Securities Holdings Bhd

TAA/AAV’s restructuring and recapitalisation plan RM168.58mn) for its rights entitlement, which will be fully funded by bank borrowings. […] Based on our rough calculations, this restructuring and recapitalisation plan would require AirAsia to inject approximately RM180mn fresh capital into AAV as the total cost of investment of RM1.14bn for 40.7% stake in AAV will be mostly funded by the proceeds from disposal of TAA and settlement of intercompany debts. […] Overall, we have a sigh of relief as the restructuring plan would not be a huge financial burden for AirAsia to stay relevant in the industry. […] Required Rate of Return of 7% is defined as the yield for one-year Malaysian government treasury plus assumed equity risk premium.

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