5 years later most listed stocks in Japan STILL trade below book value. more than 1000 companies need to be delisted. *Not giving investment advice.
Joined March 2023
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I've been thinking a lot recently about what narratives could modify the euphoric investing landscape to a more moderate or even bearish one.
Simply put I think it goes like this:
Narrative 1: "We cant spend this much anymore"
collides with
Narrative 2: "They wont let us spend this much anymore"
1 is a markets narrative, 2 is a political narrative
this Topix rebalance trade will have done more damage to Japan than anything since Kuroda. what an absolute joke of governance... I suppose the road to hell always comes from good intentions... but I think in this case its more stupidity than anything else.
Japan Deep Value retweeted
1/ @ChopraUSA has found a way to overrule 51 jurisdictions, the federal government and the New York AG at once: do nothing. No decision, no explanation, no deadline on Western Union / $IMXI. Just sit there until the deal dies.
welcome to Japain Kioxia holders.... hoping to finally get some relief with Hynix up 8%... Kioxia just turned negative.
adding this one, its too incredible not to
teapawt.net/Ingathewinger/status/2…
There have been a few posts and replies on this company already but I think, given the absurdity of the situation, its worth its own post, especially given the recent filings. The company is Hi-Lex 7279.T. Yesterday, the founding family upped its position from 25.7% to 27.3% (they now control a total of 35% of the vote, through joint filings). @TeddyOkuyama has a nice post about this company already.
Hi Lex is trading at 30% of its tangible book! They have 54bn yen of redundant (and liquid) cross shareholdings (100% of its mkt cap). 35bn yen of net cash (64% of its mkt cap). 9bn yen of receivables and 64bn yen (120% of mkt cap) of property and other assets.
Last year, the company published this "defense from TOB" document. hi-lex.co.jp/wp-content/uplo…. Within this anti-capitalist tirade, management ironically talk about corporate governance and free markets....I have no idea what motivated them to publish this, given there has not been a public activist campaign since 2007, when Steel Partners recognized the deep value opportunity here. warrenlichtenstein.com/media…
Interestingly, the company meets all of the requirements to move up from TSE Standard to TSE Prime, which would result in something like 50 days of volume of passive buying. In theory they should love the idea of this, given that the stock is so illiquid, higher passive ownership would serve as an even stronger barrier to potential activism. So why are they not applying? My view is that they don't want to be on a TSE "name and shame" list of companies trading below book value...and feel like hiding out on TSE standard will help them fly under the radar.
From these insider share purchase filings yesterday, one can assume that the family is either trying to secure even more voting control to block a potential activist campaign, or in preparation for some sort of family buy out (so they don't have to deal with the TSE "bullying" anymore). Buying out this company anywhere near where it is trading now, would be a form of robbery against minority investors, as its liquid securities and cash alone are significantly higher than the market cap here.
This situation is somewhat of a microcosm for the governance problems Japan has faced for the better part of 3 decades now. I'm not sure there is any opportunity here. It appears like this TOB defense and insider buying is more of a battle against TSE governance reforms, and the "name and shame" campaign (they plan to launch on Monday), more so than any specific activist campaign. It would be unfortunate, if this goes the way of 4987, Teraoka Seisakusho-- where ultimately management was able to rob minority investors and take the company private 50% below book value.
someone please explain to the TSE that their reforms have failed to fix valuation/share price.
Hi Lex has done everything right. Conscious of capital, improving ROE (23%!), selling non core assets (1,240 12m EPS or 1.8x P/E) and yet the market is eternally bearish and assigns this 2.8x EV/EBTIDA and 0.38x book
if you are the family that owns this company why are you letting this awful pool of investors embarrass you, year after year. there is nothing more you can do other than steal this from minority investors. there is enough net cash do it w/o any debt burden.
Japan Deep Value retweeted
We are long the “Toshiba Three”: Rohm (6963 JP), Chubu Electric (9502 JP) and TRE (9247 JP), all of which hold hidden stakes in the Toshiba buyout on their balance sheet that could be worth 80-96% of their current market cap. Presentation/disclaimer at blueorcacapital.com
There is very little investment case for minority investing in Japan equities at the moment. Outside of shareholder activism and M&A related delisting, its really hard to see any upside anymore
Global stock markets have long enjoyed a major tailwind from companies that choose to go private, and that in the process, offer shareholders a premium to do so.
However, this dynamic largely did not exist in Japan - until recently.
2026 is on track to be the third record year in a row for stock de-listings in Japan.
The number of public companies in the US has roughly halved since the year 2000. In Japan, total listings only started to fall from 2025.
This trend has a long way to run as there are many public companies in Japan that are far better suited to private equity or other private ownership due to small scale, illiquidity, lack of a coherent growth strategy, and poor capital management.
Investors in Japan should benefit from an ongoing tailwind as a growing number of companies continue to go private at strong premiums.
These guys did everything right and still can’t get the nod from TPX. I wonder when management just gives up and realizes they can’t steal this from minorities for a 30% premium to last
This bear post might seem incorrect with nikkei and ai rallying again but look no further than the results of the new topix index with only 35 adds and 684 deletes. jpx.co.jp/english/news/6030/… to see why I’m maintaining this stance. Even companies that have significantly improved their governance/returns/ earnings still won’t qualify to stay in topix. The future is delisting (at higher prices)
so event funds are really blown out of all their global equity positions because of rates... feel like they could have done a better job managing/hedging their int. rate risk and leverage around tight spreads.. jeez