Daily BriefsJapan

Japan: Toshiba Corp, Hitachi Metals, Visional Inc, Stella Pharma Corp, Rakus Co Ltd, JPY, Mercari Inc and more

In today’s briefing:

  • Toshiba – The CEO Gets His MBO Bidder and Toshiba Will Get Interestinger
  • TOPIX Upweights: Big April Basket 2021 Pre-Event Is a WIN! Now the Event-Leg!
  • Hitachi Metals – Limited Upside Despite Bain Capital News But Let’s Find the Offshoot Ideas
  • Visional IPO – VCs Bizreaching for the Exit but We Like This Anyway
  • Stella Pharma IPO – The Delicate Cancer Treatment Play
  • TOPIX April-End Rebalance – The OTHER Trades
  • Visional Inc IPO – Good Vision Muddled by Dilution and Selling Shareholders
  • Commodity Currencies and the JPY
  • Mercari – Expecting an Acceleration in US GMV Growth

Toshiba – The CEO Gets His MBO Bidder and Toshiba Will Get Interestinger

By Travis Lundy

This morning in the Nikkei there is an article (English, Japanese is here) headlined…

Toshiba receives offer from CVC to go private in $20bn deal

The accompanying article in Japanese including CEO Kurumatani-san’s comments suggests that the board will meet today to discuss it. The initial response to the press was that it had received the initial proposal yesterday without any previous consultation, so the company would seek more information and consider the proposal carefully.

It’s early days. The headline number of ¥5,000/share is too low, by a fair bit, and there are a lot of hurdles (which are NOT shareholders wanting more) before this could go forward (allowing shareholders to want more).

Exactly one year ago today, I wrote An MBO for Toshiba? Not As Silly As It Sounds after an article in an “investigative” magazine called FACTA (most famous for pre-commenting on the fraud on Olympus nearly a decade ago) put out an article “Toshiba: Kurumatani’s Astonishing MBO Scheme: Will He Be Able to Expel Noisy Shareholders?” (東芝・車谷が「MBO」画策の仰天: 物言う株主「放逐」は叶うか).

The article spent a lot of time talking about Kurumatani-san as a person, the insinuations that he hates shareholders, and about his desire to control his own fate – to “have his own castle” (by getting noisy activists out). The story suggested then that he saw his chance now (early April 2020) as the fall in the share price saw foreigners sell (that analysis was weak; I expect the activists were not the ones selling down hard in an illiquid market in the covid-crash, and I said as much). The article name-dropped PE funds and related parties (one fund, Integral, was led by a former SMBC colleague; and CVC – where Kurumatani-san spent a year as the Japan rep after leaving SMBC when he didn’t get the nod for the top job – was mentioned as another), but I highlighted, 

The “astonishing scheme” about the MBO though is not to be ignored. It serves a LOT of purposes. 

I stand by that conclusion, and it is worth thinking about how this might play out.

Much more below the fold.


TOPIX Upweights: Big April Basket 2021 Pre-Event Is a WIN! Now the Event-Leg!

By Janaghan Jeyakumar, CFA

The Tokyo Stock Exchange (TSE) calculates Free-Float Weight (FFW) for each listed company and uses this value as a key component of TOPIX Index Calculation. For companies with “low liquidity” the FFW will be multiplied by a fixed liquidity factor (“LF”) of 0.75 to derive the final FFW used for index calculation.

In TOPIX Index Upweights: The Big April Basket 2021, I discussed how the Tokyo Stock Exchange reviews this Liquidity Factor every April and highlighted 50 names (the “Big April Basket 2021”) that could potentially have their liquidity factors removed in this April’s review.

Today after the close, the official review results were announced and 48 out of 50 names in our Big April Basket 2021 were correct translating to a hit ratio of 96%. There were 11 other names added, and two of the names we expected to see the LF lifted did not.

As of today’s close, our Big April Basket (equally-weighted) is up +3.61% against the TOPIX Index in 7 trading days (since the close of the day after the insight) and there could be more to come. 

Below is a discussion on the details of the official review results and what changes are required for our basket strategy during the event-leg which could run until the end of April. 


Hitachi Metals – Limited Upside Despite Bain Capital News But Let’s Find the Offshoot Ideas

By Mio Kato

The Nikkei reported today that Bain Capital’s bidding consortium has received preferential negotiating rights from Hitachi. The rumoured valuation is above ¥800bn which would put the premium at just 3.2% above the last close. As we said previously, the potential for a large hike to those terms seems limited and better returns may be on offer in trying to identify other potential buyout targets.


Visional IPO – VCs Bizreaching for the Exit but We Like This Anyway

By Mio Kato

Visional, parent company of Japan’s high class job seeker database Bizreach is scheduled to IPO on the 22nd of April on the Mothers market. We examine the company’s business model and financials below.


Stella Pharma IPO – The Delicate Cancer Treatment Play

By Mio Kato

Stella Pharma is a global leading biotechnology company that manufactures and sells boron pharmaceuticals. The company is to list on the 22nd of April and we examine its business and cancer treatment technology below.


TOPIX April-End Rebalance – The OTHER Trades

By Travis Lundy

This insight is meant to be read in conjunction with Janaghan Jeyakumar, CFA‘s TOPIX Upweights: Big April Basket 2021 Pre-Event Is a WIN! Now the Event-Leg! (which is the announced result of the proposed 50-name buy basket introduced in the explanation of an annual but obscure aspect of TOPIX Index calculation rebalancing explained in TOPIX Index Upweights: The Big April Basket 2021).

Suffice it to say, he got 48 out of the 50 names chosen right, and there are a few more trades related to this on the side. That is US$1.1bn to buy. 

This insight is about all the OTHER names in the TOPIX rebalance for April 2020, including a total of 43 up-weights and 16 down-weights with ~ US$500mm to buy and US$260mm to sell.

That means there will be a US$1bn sell on the close of the 28th too. Not huge, but there. 

The trades to do here are for investors to see if any of these situations warrant use as a liquidity event. 


Visional Inc IPO – Good Vision Muddled by Dilution and Selling Shareholders

By Zhen Zhou, Toh

Visional Inc (4194 JP)  is looking to raise up to US$609m in its Japan IPO.

Visional Inc. is a human resources (HR) technology company based in Japan. The company operates BizReach, an online recruiting platform that helps to connect professional job seekers to direct employers and third-party recruiters. It also offers HRMOS, which is a cloud-based human capital management (HCM) platform.

We like the company’s business but the high proportion of shareholders selling in the IPO coupled with large employee stock acquisition rights to be exercisable after a year will be an overhang on share price.

In this note, we will look at Visional’s financials and operating data.


Commodity Currencies and the JPY

By Shyam Devani

Two weeks ago in a note titled Commodity Currencies and Their Warnings we examined their short term setups and potential declines (mainly against the USD)

This was largely on the back of a slip in the Oil price and long term levels being tested on major commodity indices. A lot of the indications in that note are still valid.

Since then, we see fresh indications that yields will likely slip too which brings some JPY crosses into focus. While there have not been any breaks as yet, key levels on AUDJPY and CADJPY should be watched closely.


Mercari – Expecting an Acceleration in US GMV Growth

By Mio Kato

Mercari stock looks attractive ahead of earnings on Apr 30 as data suggests that US GMV growth has accelerated again. In addition, we believe consensus forecasts could be materially underestimating profitability and that an upside surprise at 3Q is a distinct possibility.


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