Most Read: LINE Corp, Jiangsu Expressway (H), Ant Financial, Jardine Matheson Holdings, Fujitsu Frontech and more

In today’s briefing:

  • LINE (3938) – This Is Not the Kitchen Sink You Are Looking For
  • Chinese Expressways: A Step In The REIT Direction
  • Ant Group IPO First Look: Swarming to Market
  • StubWorld: Would Jardines Move Back To HK?
  • Fujitsu TOB For Fujitsu Frontech At a Discount?

LINE (3938) – This Is Not the Kitchen Sink You Are Looking For

By Travis Lundy

Since writing my two insights describing how I thought betting on a LINE bump was not the best trade out there in Bump-Land, I have received no small amount of pushback by investors who are long the bump trade. 

My response?   That’s what makes a market. 

Today, LINE Corp (3938 JP) announced its Q2 earnings, showing both a normal operating loss and additional extraordinary losses from write-downs. That will not encourage some and I expect there may be some accusations of LINE kitchen-sinking their earnings before a Special Committee (and this has its own issues) decides to revisit the fair price valuation through a re-valuation and an updated Fairness Opinion. 

For those worried about that, I offer the following:

More discussion below.

Previous insights related to this situation and the names involved are listed below.

Relevant Insights


About Cashless Payments

13 Mar 2019 Michael Causton  Loyalty Points In Japan: More Loyalty, More Points and the Conduit to Cashless Payments 
2 Apr 2019 Mio Kato, CFA  Mercari: Why Mercari Is Likely to Be a Winner in the Cashless Wars 
28 Jun 2019 Supun Walpola  Paying with PayPay: A Deep Dive into Yahoo! Japan’s Mobile Payment Business 
6 Jan 2020 Michael Causton  Lawson and KDDI Join Forces in Cashless Payments War 
24 Jan 2020 Michael Causton  Mercari – Merpay Acquisition of Origami Pay Continues Cashless Consolidation 
15 Feb 2020 Michael Causton  Japan Payment Wars: NTT Docomo and Merpay/Origami to Attempt Catch up with PayPay and Rakuten 
20 Mar 2020 Michael Causton  Some Resistance to Cashless Payments in Japan 
28 Apr 2020 Michael Causton  Z Holdings and Yamato Create Fulfilment Service for All to Rival Rakuten and Amazon 
29 July 2020 Supun Walpola  Z Holdings [Alt Data]: PayPay Mall and PayPay Flea Market Continue to Disappoint 

About This Deal

14 Nov 2019Travis Lundy Z and LINE, Sitting in a Tree… M.E.R.G.I.N… G…? 
18 Nov 2019Travis Lundy LINE and Z, Sitting in a Tree… M.E.R.G.I.N.G! And a Tender Offer! 
26 Dec 2019Travis LundyNEW Deal for LINE (A Lot Like the Old Deal)
6 July 2020Travis Lundy Market Is Pricing a LINE Bump – Should It? 
22 July 2020travis Lundy A LINE Bump – The Other Argument Against 

Chinese Expressways: A Step In The REIT Direction

By David Blennerhassett

2020 has been a bumpy journey for Chinese toll roads. China’s State Council first increased the toll-free period over the Chinese New Year to 16 days, up from seven days in a normal year. This was followed by a directive from the Ministry of Transport such that charges for using the toll roads would be waived for users from the 17 February until a later date – an exemption which was finally lifted on the 6 May.

The sector was already being scrutinized after an ETC (E-Toll discount) policy was introduced in July of last year; and a truck toll charge implemented on the 1 January of this year, with respect to toll-by-weight compared to toll-by-vehicle.

Collectively, yield-starved investors have questioned the defensiveness of the sector. Shares are off 22% on average YTD, versus 12% for the HSI.

The New News

On the 30 April, the China Securities Regulatory Commission and the National Development and Reform Commission jointly announced (Chinese-only) a new pilot for Chinese infrastructure real estate investment trusts (or C-REITs), which are ostensibly a mechanism to fund infrastructure projects such highways and airports; and only for such infrastructure which has been operational for three years.  

Details are still to be fully fleshed out, not least how China’s complex tax regime will be addressed. But it is worth exploring which toll road companies may be best suited to being taken private and repackaged as a REIT.

What’s Original?

The CSRC and NDRC’s announcement of a pilot program for public infrastructure REITs opens the door for the potential restructuring of listed toll road companies.

This in-depth insight canvasses the key Chinese toll road operators listed in Hong Kong, and assesses which companies may be targeted for acquisition, from both a financial and regulatory perspective, to spearhead this new policy.

Ant Group IPO First Look: Swarming to Market

By Arun George

Ant Financial (1051260D CH)/Ant Group is a technology company that provides digital payment services and digital financial services to consumers and small and micro businesses (SMBs) in China and across the world. Ant said last week it would pursue a simultaneous dual-listing in Hong Kong and on the Shanghai stock exchange’s STAR board. The Hong Kong share sale alone could raise about $10 billion at a $200 billion valuation, according to press reports. 

In this note, we take a first look at Ant and run through its history, industry and operating segments. We then take a closer look at the rumoured $200 billion valuation in the context of Ant’s financial performance. Based on available disclosure, our estimates and peer group multiples, the $200 billion valuation is justifiable, in our view.  

StubWorld: Would Jardines Move Back To HK?

By David Blennerhassett

This week in StubWorld …

Jardine Matheson Holdings (JM SP) is trading “cheap” at a 32% discount to NAV, adjusting for cross-holding. Jardine Strategic Holdings (JS SP) is even wide at 51% discount to NAV, also adjusting for cross-holdings. Is the time ripe for the Keswicks to collapse the structure? Would a move back to Hong Kong help narrow the discount?

Jardine Cycle & Carriage (JCNC SP) was trading cheap on a NAV and stub basis this time last month (StubWorld: Matheson Buybacks As Ratio Mean Reverts; JCNC Looking Cheap). It is now even cheaper. Time for a JCNC breakout.

Preceding my comments on Jardines, are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.

Fujitsu TOB For Fujitsu Frontech At a Discount?

By Travis Lundy

The recent past has seen some MBOs and Parent Company takeouts of companies (where incumbent shareholders and management own a large stake) and the takeout prices have been at insufficient premia, well below investor-perceived fair value, and generally opportunistic.

Current ‘live’ situations include Itochu (8001)’s takeover of Familymart (8028) (discussed here, here, and here (accompanied by a great piece by Michael Causton)), Bain’s MBO for Nichii Gakkan Co (9792 JP) which is currently also trading at a premium (discussed in a series here, here, and here; with public activist commentary linked here), and now on Naver/Softbank Corp’s takeout of LINE (discussed here, here, and here (with an earnings-related add-on here). 

Fujitsu Ltd (6702 JP) has today one-upped those pikers. 

Today, Fujitsu announced a Tender Offer for its subsidiary Fujitsu Frontech (6945 JP) at a DISCOUNT to the last traded market price, which itself was trading at a discount to book value.

Of course, the stock had experienced a nice run-up in high volume (the three highest volume days ever) in the last few days, most likely on speculation that a deal could be announced when earnings were released. There is reference in the document to the idea that the Tender Offer was “announced” or information “distributed” on 27 July, which caused the stock to go up unnaturally – attributed to “distribution of information by some information distribution companies which indicated the restructuring the group resulting to speculation buying”. I have not found that information and the document does not clarify.

source:, Quiddity

This is going to upset some people.

Based on the lowest trailing 12-month EBITDA figure in 20 years, with management forecast EBITDA expected to rise sharply in coming years, and a lot of non-cash assets which are effectively cash-equivalent for Fujitsu group, the forward EV/EBITDA of the takeout price is probably the wrong level. 

Using the 20yr low EBITDA, and assuming net receivables are factored and the PP&E is sold for a 20% discount to book and leased back would bring Enterprise Value close to zero. That is probably too low a price given management forecasts of respectable free cash flow ahead.

I’ve got popcorn.

Given the propensity for shareholders of Japanese companies to make noise when it is in their interests to do so, I might wish for a pillow instead, but hope springs eternal.

Investors need to understand that the “fairness opinions” of the “independent” valuation agents are based on conflicted target management forecasts, and the “reasonable” price has zero financial logic applied to it. If one can claim a premium is being paid to the market price, it’s probably “reasonable” to most target boards even if the price of the target and its “comparable companies” have been low precisely because of a lack of trust in the governance of the target company.

As always, there is more below the fold.

For more on the rules regulations, practices, and foibles in the M&A world in Japan, please refer to the Quiddity Japan M&A Guide 2019. For more about situations where minority investors should look at their options, please see Japan Needs More Cowbell

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