Daily BriefsJapan

Japan: Hitachi Metals, Sony Corp, Fuji Kosan Company, Kioxia, Z Holdings, Aoyama Trading, Oriental Land, CyberAgent Inc and more

In today’s briefing:

  • Bain Bids Up BIG For Hitachi Metals (5486) – Now We Wait
  • Sony – 2021 Conviction Call Hiding Profits
  • Aslead Capital Hostile Offer for Fuji Kosan (5009)
  • SK Hynix Conference Call Today: Kioxia IPO in 2H & Plan to Sell 31% After IPO
  • Z Holdings Q4 20 Results: Good Numbers as LINE Era Kicks Off
  • The Suit Comes Off: Japan Suits Retail Market Collapses
  • Oriental Land: Misses Again
  • CyberAgent: Strong 2Q Results Driven by Gaming; Upward Revisions to Full-Year Forecasts

Bain Bids Up BIG For Hitachi Metals (5486) – Now We Wait

By Travis Lundy

Hitachi Ltd (6501 JP) has, for over a decade, been restructuring itself by selling subsidiaries here and buying them in there. There are two remaining after the somewhat recent sale of Hitachi Chemical (4217 JP), de-consolidation of Hitachi Capital (8586 JP), and buy-in of Hitachi High-Tech (8036 JP) (after a flurry of other deals to sell out stakes in Hitachi Kokusai Electric (6756 JP), Hitachi Koki (6581 JP), Hitachi Maxell and Clarion in the previous few years).

In October last year, I addressed the issue of the selldown of the last two Hitachi Metals (5486 JP) and Hitachi Construction Machinery (6305 JP) in The Right Trade May Be Hitachi, which argued that Hitachi itself was probably the better deal than the subs. Since then, Hitachi is up 39.3%, Hitachi Construction Machinery (6305 JP) is up 3.6%, and Hitachi Metals (5486 JP) is up 23%. 

Mio Kato has written a few times about Hitachi Metals and about how one might not be able to expect a very high takeout price through the sale process that Hitachi was running. I wholly agreed with Mio, because I think it is not an easy asset to sell later, but I couldn’t come up with a reason to sell the stock because I expect funding is available, costs can be cut, Hitachi might keep 20% and sell a call option to help with funding, and if a company needs a lot of work to restructure, I am sure that Bain Consulting could be prevailed upon to provide their consulting services for a price (one of the dirty little secrets of private equity is that GPs get management and incentive fees on assets and sales, but profits in the interim come with costs, and some of those costs can be allocated to the GP as well).

Hitachi took in bids earlier this spring after running an auction process and three weeks ago an article in the FT hit the tape saying “Bain nears $8bn deal to buy Hitachi Metals.” That was around current market price give or take net debt so people were thinking there might not be a premium.

Today, we got a deal announcement. Indeed, Bain is paying near US$8bn, but it is structured in such a way that Bain pays ¥1675/share to Hitachi and ¥2181/share to minorities, which produces a combined price just over ¥1900/share.

This approximates a decent result for everyone involved.  

More below the fold. 


Sony – 2021 Conviction Call Hiding Profits

By Mio Kato

Sony posted OP of ¥972bn coming in just a touch above consensus and significantly below our own estimates of ¥1.12trn. Guidance for next year is overdoing conservatism predicting a 3.3% drop in OP despite a robust 7.8% projected growth in the top line. Our analysis suggests that Sony has joined its gaming brethren in hiding profit in its booming gaming segment and OP should be up very significantly next year.


Aslead Capital Hostile Offer for Fuji Kosan (5009)

By Travis Lundy

Last night, Singapore-based fund Aslead Capital Pte announced that it would launch a Tender Offer on Fuji Kosan Company (5009 JP) to take at least a 40% stake and possibly full control after ownership and approaches did not lead to “satisfactory” measures to improve corporate value. 

The shareholder had been acquiring shares since last year. It first went above 5% in August 2020 and until yesterday had most recently reported a 14.83% stake on 4 February. 

The stock has an interesting set of investors, and was for many years in the early to mid-2010s a poster child for tiny cap deep value investment targets. 

As of the announcement, Aslead states that it owns 16.8% which means to get to 40.0%, it needs only 23.2% of shares out – of the 83.2% it does not own. 

The company has been building an ‘interesting’ set of shareholders and relationships. One activist sold last year to be replaced by another. There is someone infamous from the tabloids. This could be fun to watch. It will certainly trade through terms early. The question then is what next?

There is a behind-the-scenes link to the family office responsible for the single most fun family office website ever made (after you press enter, check on the left side to see the sound is on and if you need to read the text more smoothly switch from angled to vertical just above the sound on/off section). 


SK Hynix Conference Call Today: Kioxia IPO in 2H & Plan to Sell 31% After IPO

By Sanghyun Park

In today’s conference call, SK Hynix said an interesting thing about Kioxia.

  • Hynix confirmed that Kioxia would give another shot to an IPO in the second half of this year instead of taking the Micron/WD offer.
  • Hynix said that was what it was told by the Bain Capital Consortium and the Kioxia management lately.

Z Holdings Q4 20 Results: Good Numbers as LINE Era Kicks Off

By Kirk Boodry

Z Holdings Q4 results are largely as expected but a meaningful reduction in market expectations (shares down 12% YTD and 31% from recent highs) means that should be taken positively. Underlying performance was strong as online retail demand expanded with the re-introduction of emergency measures (merchandise GMV +26%) even as advertising sales grew better than expected (+5% v mgmt guidance flat YoY). The outlook for FY21 is slightly better than Redex forecasts for revenue and adjusted EBITDA although the corresponding operating income is in-line so our outlook probably won’t change much. We remain at Buy


The Suit Comes Off: Japan Suits Retail Market Collapses

By Michael Causton

The Japanese suits market is in free fall, with average expenditure per household down from a peak of ¥19,000 to just ¥1,300 last year. The big four suit retailers are reeling, slashing staff, stores and sales space and investing in new businesses outside of the suits market. While suits are in decline, workwear suits starting at ¥4,800 are taking off.


Oriental Land: Misses Again

By Oshadhi Kumarasiri

Since the beginning of the COVID-19 pandemic, we have been highlighting the fact that Oriental Land (4661 JP)’s consensus estimates have been out of touch with reality. Just three months ago, consensus 4QFY21 revenue and OP were as high as ¥72.6bn and minus ¥5.9bn respectively.

Yet again, the company delivered disappointing results (4QFY21) with ¥33.5bn revenue, missing the most recent consensus estimate and the company guidance by 22.4% and 30.7% respectively. The company’s 4QFY21 operating loss was ¥26.1bn compared to the latest consensus operating loss estimate of ¥17.1bn and the company guidance of ¥31.6bn.


CyberAgent: Strong 2Q Results Driven by Gaming; Upward Revisions to Full-Year Forecasts

By Shifara Samsudeen, ACMA, CGMA

Cyberagent Inc (4751 JP) reported its 2QFY09/21 financial results after market closed on 28th. Both revenue and OP beat consensus by 14.6% and 114.7% respectively during the quarter.

The company has revised its FY09/2021 forecasts upwards given that it has already reached its OP target for the year. Cyberagent’s gaming business released two new titles, which have allowed the company’s overall revenues and OP to hit an all-time high. The internet advertising business has also improved post-COVID and splitting ABEMA between its Free Business Unit and Premium Business Unit appears to have been a good move for the company.


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