Daily BriefsJapan

Japan: Invesco Office J Reit, Nissan Motor, Rakuten Inc, Hitachi Construction Machinery, United Arrows, Suzuki Motor, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

  • Invesco Real Estate Deal for Invesco Office (3298) Successful – Now For the Aftermath
  • Nissan Motor – Dependant on Its Finance Business
  • Rakuten Group (Neutral) – Credit Downgrade, Network Delays as Company Enters Toughest Stretch
  • HCM – Miss on Margins
  • United Arrows Unveils Online Brand
  • Suzuki – Maruti Weakness Makes Our Predicted Miss Likely
  • Japan’s Governance: Disclosure Factor for Annual General Shareholders Meeting and Investor Relations

Invesco Real Estate Deal for Invesco Office (3298) Successful – Now For the Aftermath

By Travis Lundy

The bid by the Invesco parent company (Invesco Real Estate and affiliates) for Invesco Office J Reit (3298 JP) turned out successful, and the bidders gained 5,727,676 units out of the 8,802,650 units out in the float. They now own 65.07% (having started with 6%) so this will end up going to an EGM.

As described in the original Notice concerning the Statement of Opinion (Support) on Tender Offer by Invesco Group released by IOR on 17 June and in line with my earlier insights, there will be an EGM which will aim to squeeze out minorities. That would theoretically require a two-thirds vote to change the Articles of Incorporation. 

The key date is 31 October 2021 because that is the end of the current (15th) fiscal period. The buyer should try to get the squeezeout accomplished by the end of that period, and if possible, to push it onward to a new fund on or before that date which can be declared to be distributed so that the tax conduit remains in place. 

The language in the Opinion says… 

Additionally, the Tender Offerors intend to request the Investment Corporation to convene an extraordinary unitholders’ meeting before the end of October 2021, which is the end of the 15th fiscal period of the Investment Corporation (meaning the last day of the fiscal period, hereinafter the same), and amend its articles of incorporation to change the end of the 15th fiscal period from October 31, 2021 to April 30, 2022.

There is separate language which says there will be no more dividends for the period ended 31 October 2021. Investors who hold on to the other 34.93% are now long a thing which will not earn anything in future for them. 

Who still owns units? What does that mean? Is there an arb? Are there index trades? 

The answers to this and more below the fold. 


Nissan Motor – Dependant on Its Finance Business

By Mio Kato

Nissan reported 1QFY22 results on Wednesday generating revenue of ¥2,008bn (-21.1% QoQ, +71% YoY) and OP of ¥75.7bn (for an OPM of 3.8% compared to OPM of -13.5% and -0.9% respectively in 1QFY21 and 4QFY21). The improvement of Nissan’s profitability compared to its previous quarter was mainly due decreases in SG&A expenses which were 12.8% of revenue compared to 15.1% and 21.9% respectively in 1QFY21 and 4QFY21. The reported revenue was 6.5% higher than consensus estimates while OP beat by ¥130bn, thanks in large part to the finance business.

In ¥bn

Revenue

OP

OPM

Actual Results – 1QFY22

2,008

              76

3.8%

Consensus – 1QFY22

1,886

–            55

-2.9%

Surprise

6.5%

NM

6.7% points

 

 

 

 

Guidance – FY22

9,750

150

1.5%

Consensus – FY22

          9,114

            4.6

0.1%

Difference

7.0%

3183%

1.5% points

Source: Company disclosures, CapIQ

Rakuten Group (Neutral) – Credit Downgrade, Network Delays as Company Enters Toughest Stretch

By Kirk Boodry

Rakuten shares are down 8% this week on credit concerns and delays in network expansion. The S&P credit downgrade is a lagging indicator but slower network deployment could have future consequences. A key theme for Rakuten Mobile this year is customer retention as it converts free trial users to revenue-generating subs and network quality is by far Rakuten’s biggest weakness. That mobile revenue is needed to offset aggressive marketing costs now that the pricing playing field has been defined. We expect peak operating losses over the next few quarters and that keeps us cautious on the story. We remain at Neutral.


HCM – Miss on Margins

By Mio Kato

HCM announced slightly concerning 1Q results yesterday as despite a strong revenue beat (12% above consensus), OP missed by 10%. This is a result of gross margin continuing to undershoot and it is unclear when this issue might be resolved.


United Arrows Unveils Online Brand

By Michael Causton

United Arrows core (and original) customer is now in their 40s and 50s with a large wallet and a willingness to spend on premium fashions. The venerable select shop retailer doesn’t want to age alongside its first customers and has unveiled a new brand targeting younger consumers with its lowest prices yet. United Arrows has faced tough trading during the pandemic but should benefit from a rebound given its strong brand and improving supply chains delivering better cost performance.


Suzuki – Maruti Weakness Makes Our Predicted Miss Likely

By Mio Kato

Maruti reported 1Q results yesterday missing consensus as the company narrowly avoided generating an operating loss. OP was just INR0.78bn and in addition to material cost inflation we pointed to, labour cost was also surprisingly high, illustrating Maruti’s negative sensitivity to inflationary pressures.


Japan’s Governance: Disclosure Factor for Annual General Shareholders Meeting and Investor Relations

By Aki Matsumoto

Metrical uses a variety of evaluation criteria to score the corporate governance of listed companies. One of the evaluation criteria is the disclosure factor regarding disclosure of information on annual shareholders meetings and investor relations. It is important to know whether a listed company is actively communicating information to its shareholders and investors, and whether its disclosure efforts are moving in the right direction. It makes a huge difference for shareholders and investors to make investment decisions if the company does not disclose information in a positive manner. This is because the disclosure of information that can be used to make decisions about the risk-return of a company’s business and the location of its management risks can help reduce investment risks. It has also been confirmed that the AGM and IR disclosure scores (AGM/IR scores) are statistically correlated with ROA (actual performance) and Tobin’s Q.


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