Daily BriefsJapan

Japan: Pressance Corp, Roland DG Corp, oRo Co Ltd, Rakuten Inc, Rarejob Inc, Smc Corp, I.K Co Ltd, Mitsubishi Motors and more

In today’s briefing:

  • Pressance (3254 JP) Partial Tender – YUMMY!
  • Roland Corporation IPO: Better Prepared for Cyclicality Than Before
  • ORO: Our Takeaways From Q3 Results
  • KKR & Rakuten Join Hands to Acquire the Supermarket & Hypermarket Chain Seiyu
  • TOPIX Inclusion (6096 JP): Rarejob Inc
  • SMC – Middling to Disappointing
  • TOPIX Inclusion (2722 JP): I.K Co Ltd
  • Mitsubishi Motors – Rumoured Stake Sale by Nissan Will Renew Alliance Breakup Concerns
  • Rakuten Moves into Luxury Market
  • The Walmart Japan Sell Off: A Huge Gain for Rakuten

Pressance (3254 JP) Partial Tender – YUMMY!

By Travis Lundy

On Friday 13th November 2020, Open House (3288 JP) and 32%-owned affiliate Pressance Corp (3254 JP) announced a revision of their shareholder agreement and a quasi-MBO Partial Tender Offer and Capital Injection which would, as a result of both being successful, get Open House to 65% ownership and would get Pressance an additional JPY 5bn in capital. 

Pressance (3254 JP) is a relatively fast-growing Kansai-based real estate developer and broker in Japan, building, selling, and managing condos and parking lots. It specializes in smaller condos – both in terms of bedrooms per unit and in terms of total units per property – and investment properties, and then managing those properties. It also runs a small hotel business. Pressance had been fast-growing in stock price as well until just under a year ago when former CEO Yamagishi-san was arrested in connection with a case of missing money at a school called Meijo Gakuen. The previous president was arrested too. Hedge funds bought shares in large numbers at the time. Tower Investment Management, which had been steadily selling into strength, bought 3.5% of the shares out in the two days after the sharp selloff started, getting to 10.27%. They bought more in March when the COVID crisis hit getting to 15.46% by early April 2020. CEO Yamagishi sold 31.63% to Open House in April.

Open House (3288 JP) is a larger fast-growing Kanto-based real estate broker and developer, getting two-thirds of its revenue from the development and sale of single-family homes, another 10% from developing condominiums – both done under a number of “brands”, and another 20% from the property resale/broking business with more than 80% of properties (by count) in the 100-500mm and 500mm yen-plus price categories (65% in Tokyo and Yokohama, 35% in Kansai/Chubu/Kyushu and elsewhere).

Open House already owns just under one-third of Pressance and is looking to make that just under two-thirds, probably hoping that some shareholders who might be viewed as “noisy” will accept the invitation to exit their positions. This is also an exit opportunity for the former Pressance CEO who will be selling roughly 8% of Pressance shares into the Tender Offer. For Open House, this is a bolt-on to consolidate more growth.

We’ll see.

As always with partial offers, below you’ll find the details and the Partial Offer Arb Grids.


Roland Corporation IPO: Better Prepared for Cyclicality Than Before

By Oshadhi Kumarasiri

Founded in 1972 in Osaka, Japan, Roland Corp (7944 JP) is an iconic brand name in the electronic musical instruments industry. Though the company lost its way a bit after the 2007-08 global financial crisis, it still holds a market leading position in the global electronic musical instruments industry.

Source: Company Disclosures

On 11th November 2020, Roland Corporation filed for an IPO on the Tokyo Stock Exchange to sell 11.71m shares held by Taiyo Jupiter Holdings. This IPO marks a return to trading six years after Roland Corporation was taken private via a MBO in 2014.

The book-building period starts from 1st of December and runs till the 7th of December. The offer price will be announced on the 8th of September. The subscription period is from the 9th of December to the 14th of December, and the expected listing will be on 16th December 2020.

Underwriters to the deal are SMBC Nikko Securities, UBS Securities, Nomura Securities, Matsui Securities, Rakuten Securities, SBI Securities, and Monex Inc.


ORO: Our Takeaways From Q3 Results

By Steven Chen

  • Last week, Japanese ERP and digital consulting firm oRo reported its Q3 results demonstrating weakness across both business segments;
  • The market sold off upon the “bad” news;
  • At the same time, long-term investors may want to figure out whether there is a secular deterioration of business fundamentals or just a temporary glitch.

KKR & Rakuten Join Hands to Acquire the Supermarket & Hypermarket Chain Seiyu

By Oshadhi Kumarasiri

Walmart (WMT US) owned Japanese supermarket and hypermarket chain Seiyu announced on 16th November 2020 that KKR & Co Inc (KKR US) and Rakuten Inc (4755 JP) will acquire 65% and 20% of the share capital of Seiyu in a deal which values Seiyu at ¥172.5 billion ($1.6 billion).

The transaction is expected to be completed in the first quarter of 2021, pending regulatory approval. KKR, Rakuten and Walmart plan to jointly operate Seiyu.


TOPIX Inclusion (6096 JP): Rarejob Inc

By Janaghan Jeyakumar, CFA

TSE Mothers-listed Rarejob Inc (6096 JP) announced after market-close on 13th Nov 2020 they had received approval to move to the First Section of the Tokyo Stock Exchange as of 20th November 2020. 

TSE1 reassignment triggers inclusion into the TOPIX Index and the Inclusion Event can be expected to be at the close of trading 29th December 2020. 

Rarejob Inc (6096 JP) provides English-language training for individuals, corporates, and educational institutions in Japan and the Philippines. They currently have 6,000 registered Filipino tutors and online educational content to support distance learning for various age groups. 

In this insight, we take a look at the Index Inclusion Parameters and the Fundamentals of the company to evaluate the upside potential of the TOPIX Inclusion Event. 


SMC – Middling to Disappointing

By Mio Kato

SMC’s 2Q results were less than stellar as revenue was in line with consensus but margins disappointed resulting in a miss by 6.6%. This is in contrast to many FA peers which have outperformed expectations we would not be surprised to see a rotation away from SMC towards other FA names.


TOPIX Inclusion (2722 JP): I.K Co Ltd

By Janaghan Jeyakumar, CFA

I.K Co Ltd (2722 JP) announced today after market close they had received approval (J-only) to move from the Second Section to the First Section of the Tokyo Stock Exchange as of 4th December 2020. 

I.K CO., Ltd. provides marketing services for various skin care products, make-up items, and low-calorie healthy-lifestyle food products. 

TSE1 reassignment triggers inclusion into the TOPIX Index and the Inclusion Event can be expected to be at the close of trading 28th January 2021. 

In conjunction with the TSE-reassignment announcement, the company also announced (J-only) a share sale for a total quantity of 575,000 shares including an over-allotment quantity. 

In this insight, we take a look at the Index Inclusion Parameters and the Fundamentals of the company to evaluate the upside potential of the TOPIX Inclusion Event. 


Mitsubishi Motors – Rumoured Stake Sale by Nissan Will Renew Alliance Breakup Concerns

By Mio Kato

Bloomberg reported today that Nissan is exploring the possibility of selling some or all of its stake in junior alliance partner Mitsubishi Motors. We had previously highlighted the struggles of the alliance members even relative to their peers and this stress appears to be putting increased pressure on the alliance itself. While this rumour guarantees nothing, we believe the continued earnings weakness from the alliance members increases rather than decreases the chance of a breakup.


Rakuten Moves into Luxury Market

By Michael Causton

As well as a bold move into food retailing via a 20% stake in Walmart’s Seiyu business, Rakuten Inc (4755 JP) has also just made a play for a slice of the online luxury market.

Rakuten is determined to become a leader in online fashion retailing, hoping some of the sector’s glamour will burnish its own brand name too. After relaunching its fashion store as Rakuten Fashion last year, it has now opened a new luxury section, including brands from LVMH, reflecting how online malls are increasingly agnostic in their positioning, catering to brands and customers at all levels. ZOZO Inc (3092 JP) should be worried.


The Walmart Japan Sell Off: A Huge Gain for Rakuten

By Michael Causton

Wal Mart Stores (WMT US) will sell 85% of its stake in Seiyu, the Japanese general merchandise store (GMS) chain to KKR & Co Inc (KKR US) and Rakuten Inc (4755 JP).

This ends Walmart’s original plans to relist its Japanese business and confirming widespread speculation that it has been trying to sell off its 330-store Japanese operation after 17 years of trying to turn the business around. The purchase price is a reported ¥172.5 billion, considerably less than the ¥441 billion Walmart paid for the business in 2007.

The deal is a win for KKR of course, but much more interestingly, is a huge win for Rakuten. We previously suggested in this Insight that should the Walmart/Rakuten deal not grow fast enough, Rakuten would be a natural acquirer of the Seiyu business and this has turned out to be true – and for good strategic reasons.

As described before here and here, the Japanese online food market is only just beginning to boom (penetration of food retail by online is still less than 3%) and many of the key players are jockeying for position, led by Amazon.com Inc (AMZN US) in a joint venture with Life Corp (8194 JP). 

If Rakuten can begin to properly exploit Seiyu’s physical store presence to quickly build out a nationwide online food delivery business, it should rapidly become one of the leaders in this fast-expanding market. And given how important the food/FMCG category is, leadership in food e-commerce equals leadership in BtoC e-commerce overall.


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