Daily BriefsJapan

Japan: Softbank Group, Yukiguni Maitake, Koei Tecmo Holdings, Kirindo Holdings, Daikin Industries, Softbank Corp, Hinokiya Holdings, RPA Holdings Inc, Chatwork Co Ltd and more

By September 11, 2020 No Comments

In today’s briefing:

  • Softbank Group – Funding Secured by Masayoshi Musk?
  • The TSE’s Listing Criteria Revisions – Part I
  • Koei Tecmo – The Market Is Sleeping on the Zelda Musou Nintendo Tie-Up for Switch but Shouldn’t
  • Kirindo (3194) – Another Cheap Bain MBO With Weak Adherence to Fair M&A Guidelines
  • 🇯🇵 JAPAN • Daikin (6367 JP) – Perfect Pricing
  • Softbank Corp Placement – Quick Update – Wide Discount from Undisturbed but Don’t Expect Much
  • Hinokiya (1413 JP) Partial Tender Arb Grids & ProRation
  • Small Cap Growth: RPA (6572) – The Digital Workforce
  • Small Cap Growth: Chatwork (4448) – It’s Good to Chat.

Softbank Group – Funding Secured by Masayoshi Musk?

By Mio Kato

The Japanese language Nikkei had an article out yesterday after the close discussing the possibility of a Softbank MBO. Of course, with Softbank you really never know, but to us this smells like an attempt to drive a short squeeze. We discuss why below.

The TSE’s Listing Criteria Revisions – Part I

By Travis Lundy

In late July, the Tokyo Stock Exchange issued Revisions to Listing Rules to Enhance Functions for Raising Funds through the Capital Market. 

The Revisions To The Rules

Document Language
Main Document Source Pages English, Japanese
Presentation English , Japanese
Details English , Japanese
Disclosure related to Business Matters & Growth Potential Preparations (Provisional Version) – MOTHERS-related Japanese

The presentation is the most useful of the documents. 

The presentation starts with something ubiquitously covid-19-related. This covid aspect is, of course, hogwash. 

As the Covid-19 outbreak severely impacts business activities and corporate performance, Tokyo Stock Exchange, Inc. (TSE) recognizes the urgent need to enhance capital market’s functions for companies raising funds in the market, thereby facilitating a swift recovery in the Japanese economy and sustained growth while strengthening the soundness of the market.

This announcement was made with an eye towards the planned equity market restructuring (as previously discussed in insights linked below) in order to re-define listing criteria for each of the three major future sections (A “blue chip” section, a “growth” section, and an “everyone else” section. This was principally RE-announced (because the content is the same as the 21 February announcement) to announce the beginning of the public comment period.

The major revisions are: 

  1. For the First Section (the “blue chip” section): raise minimum market cap, float market cap hurdle, net assets, and profitability hurdle, but lower the minimum number of shareholders, and, relax the criteria for large companies to not get demoted to TSE2 or delisted if the company goes to negative net worth (avoid automatic demotion of Sharp and Toshiba). [note that there are other enhancements in the cash market restructuring designed to garner further approval from international/domestic institutional investors with regard to improvements in governance, etc, for future “blue chip” section companies]
  2. For MOTHERS (the “growth” section): loosen listing criteria (accept even smaller companies with even fewer shareholders. “Improve shareholder confidence through enriching the disclosure system for business plans.”
  3. For TSE2/JASDAQ Standard (the “Everybody Else” section):  standardize listing criteria so that all of the relevant sections have the same criteria (because in the cash market restructuring they will become one), relax TSE criteria to be more like JASDAQ criteria (lower minimum float, lower minimum market cap, lower minimum #shareholders, lower minimum business performance before listing, etc, and then a requirement that JASDAQ-listed stocks adopt the corporate governance code. 

None of these changes are terribly ground-shaking at first glance. And the information was almost completely unchanged from the Overview of the Market Structure Review Outline of the New Market Segments published in February this year. 

  • It will make it possible to have less-liquid stocks all across the spectrum, but all stocks will start to comply with the corporate governance and reporting requirements of the main board.
  • Eventually, with the launch of the restructured market sections, there will be enhanced corporate governance, and there may be a revamped stock index to replace TOPIX, or TOPIX may be re-jigged.
  • Either way I expect that it will not be hugely consequential for years to come. I expect that a new index to replace the equivalent of TOPIX Small will be implemented to allow the transfer of capital into smallcaps – i.e. something akin to a Russell 2000 – which major domestic passive managers will be urged to use with a small allocation to it as they rotate to something like TOPIX Prime which only has large caps.
  • Foreign investors who currently use a large cap universe such as MSCI will not see any good reason to switch to the new TOPIX PRIME Index.
  • Done right, there will be revisions to the index futures, dividend futures, index options, etc products. 
  • Done REALLY right, there will be structured buybacks by companies leaving the indices in phased stages.

But this does create some near-term “issues” for TOPIX and those companies which would try to get in. More discussion below.

Koei Tecmo – The Market Is Sleeping on the Zelda Musou Nintendo Tie-Up for Switch but Shouldn’t

By Mio Kato

Two days ago Nintendo released an announcement about Hyrule Warriors: Age of Calamity (Aka Zelda Musou). This is a tie-up with Koei Tecmo and will be essentially a Zelda skin on KT’s Dynasty Warriors series… except it isn’t. More below.

Kirindo (3194) – Another Cheap Bain MBO With Weak Adherence to Fair M&A Guidelines

By Travis Lundy

At 9pm last night, basically a full day after Kyodo carried a news story that Kirindo Holdings (3194 JP) was going to be taken private by Bain, the company dropped a load of documents onto the TDNet exchange document filing system indicating that indeed Bain would conduct a Tender Offer to privatise the company and delist it. 

I imagine bankers spent all day putting the information together. It’s kind of a complicated document and structure – more so than normal. But at heart, it is an MBO where at the end, Bain Capital will have about 60% of the resultant enterprise, and the Teranishi family will have about 40%. Given that the two familymembers who will 

The founder and current chairman Teranishi Tadayuki (91) does not appear to be selling in the end, but his son Teranishi Toyohiko, the president (63) appears to be the solid leader through the next stage. This appears to be a kind of succession planning construct, not unlike the Nichii Gakkan Co (9792 JP) MBO and several others in the past couple of years.

Succession-planning MBOs are all the rage. There are good reasons for this. I expect this trend to only accelerate from here. 

More below the fold. 

🇯🇵 JAPAN • Daikin (6367 JP) – Perfect Pricing

By Campbell Gunn

Source: Daikin

GLOBAL LEADER – Daikin is one of Japan’s few global enterprises, and the company is rightly proud of its status as the ‘world’s No.1 air-conditioning company’. Based on the company’s FY21 forecast, Japan represents only 23% of sales – over US$6 billion of revenues are to sourced from the Americas, one of the largest exposures of any non-auto company to that region. Daikin has benefited from its sole focus on A/C and a lack, as yet, of a viable Chinese competitor.

In the DETAIL section below,  we shall review Daikin’s financial performance, returns and valuation. We shall not attempt to forecast the prospects for the A/C industry or assess Daikin’s competitive position. Nevertheless, we expect A/C market growth to continue to exceed GDP growth and for Daikin to continue to gain market share globally, including through acquisitions. We expect the company to use the ¥183 billion increase in net debt in the last quarter to expand its global presence further.

PERFECTION – By bidding up Daikin’s shares by 50% in the last six months, the market has looked far beyond COVID-19 and has anticipated much of the company’s incremental medium-term growth. At a current EV/Peak OP of 20.3 times, Daikin has only been as expensive by this metric in 1996 and 2000.

Softbank Corp Placement – Quick Update – Wide Discount from Undisturbed but Don’t Expect Much

By Zhen Zhou, Toh

Softbank Group (9984 JP) (SBG) is looking to raise about US$11bn by selling some of its shares (10%) in Softbank Corp (9434 JP) (SBC). Post sell down, SBG will still hold about 2bn shares (about 42% stake) in SBC.

In this insight, we will look at the deal dynamics, recent performance of the company, and run the deal through our deal framework.

We have previously looked at the May placement, the potential selldown (post announcement selling assets to fund buyback) and its 2018 IPO in:

Hinokiya (1413 JP) Partial Tender Arb Grids & ProRation

By Travis Lundy

The first insight in this event coverage was Yamada Denki Partial TOB For Hinokiya (1413 JP). In that insight I wrote that this was a transaction where the founding family was selling and the company was getting a new sponsor. If the forecasts for this year and the Medium Term Plan are anywhere near accurate, this is a very cheap stock. 

If you can buy it cheap to terms (say 3-4% below terms), because of the structure of the shareholder base and the conditions of the Offer, I expect this will leave one with a very attractive net average breakeven buy price. 

This insight contains the Arb Grids showing breakeven forward price, breakeven PER, breakeven PBR based on market price, pro-ration, and company guidance. 

More detail below. 

Small Cap Growth: RPA (6572) – The Digital Workforce

By Mark Chadwick

  • RPA Holdings Inc (6572 JP) is the Japanese leader in the hottest area of enterprise tech, Robotic Process Automation. 
  • Adoption of RPA in Japan is still low and there is a huge potential addressable market.
  • RPA’s BizRobo platform has hit a growth wobble, but the larger, higher margin Robot Transformation segment is on fire. 
  • The stock trades at an 80% discount to global peers.

Small Cap Growth: Chatwork (4448) – It’s Good to Chat.

By Mark Chadwick

  • Chatwork Co Ltd (4448 JP)  is Japan’s leading business chat app provider with a ¥50bn market capitalization.  

  • With 35% topline growth, the company’s future lies in conquering the SME market and then using that as a platform to launch additional value-added services.  

  • Chatwork dominates within the SME chat market and competes head to head with Slack Technologies Inc (WORK US)  in Japan.  

Before it’s here, it’s on Smartkarma