✳️ In Part 1, we discussed the Background and Business of JPX and started on the Fundamentals. Here’s a quick recap:

• JPX was formed via the merger of Tokyo and Osaka Exchanges in 2013 and it subsequently acquired the Tokyo Commodity Exchange (TOCOM) in 2019. It is 3rd largest stock exchange globally, hosting >USD6trn market cap of Japanese stocks but ranked 8-12th largest in terms of market cap.

• As Japan’s primary trading venue, it is market participants’ de-facto choice to trade Japanese stocks and to use its product and services such as clearing and settlement. JPX also provides index and data services.

• JPX’s main cost buckets are i) system maintenance & operation and its depreciation, ii) personnel expenses. With its simple cost structure, JPX has solid margins, ROEs and robust free cashflow generation.

• Activism in Japan will continue to create shareholder value as activists are holding Japanese management accountable, pushing for better shareholder returns and elevating share prices above book values.

• JPX, the biggest cheerleader for activists, needs to hold itself to higher standards. Therefore, share price should not under-perform the index.

• Top management has been drafted from the luminaries of Japan Inc - Andy Saito, Akira Kiyota and currently CEO Hiromi Yamaji. We have more on this later. Current CEO is working hard to improve Japanese companies.

• Employees mostly ex-government elites. Staff quality is therefore inherently high and are diligent and capable.

We will be following through with the usual initiation format as shown below. We have covered the first two in the previous post:

1. Background and Business
2. Investment Thesis
3. Moats 
4. Positives
5. Management
6. Risks
7. Technicals
8. Valuations

Moats

Let’s start with a quick commentary on JPX’s moat. At the risk of stating the obvious, exchanges are monopolies and their business moats are incredibly strong.

First, exchanges are regulated, so you and I couldn’t just open one, and even if we do, who would want to trade on 8percent Exchange? As monopolies, they surely have a lot of pricing power on listing fees, trading and clearing fees. But it seemed that JPX has not been utilising its pricing power. More on this later.

For JPX specifically, if you want to buy Japanese stocks, there isn’t really many other choices. There are some ADRs some dual-exchange listed Japanese socks, but the liquidity is the highest on the Tokyo or Osaka stock exchanges.

✳️ Furthermore, if you want to buy cheap activist stocks, you can only do so on JPX.

Let’s go into the positives.

Positives

JPX stands to benefit from several structural tailwinds that could keep driving share price north. We shall discuss them below:

• As discussed, shareholder activism is the big wave lifting all boats. The slide below shows the close coordination between FSA and JPX continues to encourage shareholder activism in Japan. This improves capital efficiency and raises the appeal of Japanese equities to both domestic and global investors.

  

• To grow revenue further, JPX has plans to launch many new products – Interest Rate Derivatives, FX futures (USD/JPY, EUR/JPY, CNH/JPY) FX derivatives and more tradeable single stock options. This would also drive business growth in OTC and clearing services.

• JPX has managed to grow at single digit CAGR over the past decade (this is a good thing because revenue rarely grow in Japan, land of declining population and declining revenue). Over time, revenue has also grown across all sub-segments as shown in the red boxes below. But there should be more upside. Case in point: JPX’s revenue is almost as big as SGX’s, which is unthinkable because Japanese economy is at least 10x bigger than Singapore’s and population is c.20x bigger.

  

• While revenue grew, expenses has kept up (orange box above), but over time, JPX should continue to reap operating leverage even though it already has high margins, which is slightly better than its peer group average.

• Lastly, Nippon Individual Savings Account or NISA, a government-backed initiative designed shift Japanese households’ cash savings into financial assets has been a driving force for the Japanese market. NISA investments, which was negligible just three years ago, currently accounts for c.JPY40trn vs Japan’s market cap at c.JPY900trn. There is still much room to grow. The following excerpt from A.I. gives the background of NISA and how it has become very successful over the last few years.

Japan’s NISA (Nippon Individual Savings Account) program, modeled after UK's Individual Savings Account (ISA), is a tax-advantaged investment account designed to encourage Japanese residents to shift their assets from low-yield cash into the stock market. 

The program was significantly revamped in January 2024 to make it more appealing and effective in achieving its goal of promoting a “savings-to-investment” culture.

The core feature of NISA is that it makes investment gains tax-free within certain limits, which is a significant incentive given that profits from standard investment accounts are typically taxed at about 20%.

By encouraging millions of new and existing retail investors to allocate more funds annually (up to 3.6 million JPY per person) to stocks and funds, NISA provides a steady, structural, and substantial flow of demand for market-listed assets

Management

JPX was helmed by Atsushi “Andy” Saito from 2013 to 2015. He was an ex-Nomura banker and after his stint at JPX, he went on to become the Chairman of KKR Japan and led the private equity firm to become the deal powerhouse it is now in Japan. Mr Saito laid the foundation for JPX to grow under his successor Akira Kiyota from Daiwa. Mr Kiyota then trailblazed JPX’s corporate governance focus and growth in ETF offerings.

https://www.jpx.co.jp/english/corporate/news/press-conference/b5b4pj000000n3ug-att/20150710_en.pdf

The pdf above has the details of the successes of Mr Saito and Mr Kiyota in those early days. Mr Kiyota led JPX to greater heights by driving new business in derivatives trading and the merger of Tokyo Commodity Exchange (TOCOM). While he also tried to expand overseas, the end result was that focusing on Japan bore better fruits. He retired in 2023 and passed the reins to Mr Hiromi Yamaji.

Mr Yamaji ruffled a lot of feathers in Japan by pushing corporate governance reform and siding with activists to “improve” Japanese companies. He is the key driving force behind JPX’s goal to lift the 40% of Japanese companies still trading at <1x PBR to trade above their book values.

Mr Yamaji recognized that activists are simply capitalists looking to unlock value. When activists target some company trading below book, it is for the betterment of all shareholders and employees that their firm is worth more. However, just like anyone who wouldn’t want a stranger to tell him or her to lose weight or stop smoking, Japanese companies hate it when outsiders / foreigners tell them they shouldn’t keep cash or they should divest their non-core business or improve their board and corporate governance.

JPX, under Mr Yamaji, is trying to play the role of the non-outsider, as the stock exchange, to advise its listing companies to improve. The best defense against activist is a high stock price. Activists will not target expensive companies.

The best defense against activists is to optimize the firm's balance sheet, improve earnings power and ROE, thereby commanding a valuation premium in the stock market. 

That said, as we can imagine, it is not easy. Various activist case studies in the past showed how companies will try all ways and means to thwart activists’ efforts. Sometimes the corporates prevail, and other times, the activist wins. Owning JPX is one neutral way to ride the activist megatrend in Japan.

Levers

Next, we discuss what levers JPX’s management can pull to grow faster.

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 "Two all beef patties, special sauce, lettuce, cheese, pickles, onions on a sesame seed bun!" 

There was also some kind of challenge which if you could say this under four seconds, you get a free burger or something. Isn’t that fun? By the way, this is all true and this actually happened. Well, that’s MacDonald’s back in the early days. Today, it is the most successful restaurant business in the world (market cap >USD200bn) and related to our investment idea today.

Today, we return to discussing a Japanese activist stock. This is one of the more interesting businesses we have encountered in Japan. This company operates the de-facto platform for restaurant owners and restaurant jobseekers in Japan. Alas, 99.99% of all restaurants will never be like MacDonald’s. As restaurant owners would know, restaurants are treacherous cut-throat businesses where fortunes are made and lost. Mostly lost.

But owning a platform supporting restaurants, that’s profitable and free cashflow generative. Private equity folks love these platforms.

This company began operations in 2003 and has been listed since 2016. It created the #1 restaurant platform eco-system in Japan over 22 years and has been through COVID-19 and recovered. Share price is near its COVID-19 low and hence looks interesting. Let’s look at the simple financials.

Financials (Estimated for Mar 26)

• Net Sales: JPY4bn, OP: JPY1.1bn, Net Income: JPY0.7bn

• EBITDA: JPY1.1bn, Free Cashflow (FCF): JPY0.8bn

• Earnings Per Share (EPS): JPY28, Dividend: JPY15 per share

• Net Cash*: JPY5bn, Market Cap: JPY16.8bn

*Net Cash: Cash + Securities - Shares in subsidiaries - Short-term debt - Long-term debt

Financial Ratios (Estimates)

• ROE: 14.7%, ROA: 12.5%

• GPM: 82%, OPM: 28%

• EV/EBITDA: 10.8x, PER: 21.0x, PBR: 3.2x

• FCF Yield: 5.4%, Dividend Yield: 2.7%

Two activists (or perhaps three) have already bought into this name with the top two owning teens percentages, all of which added together is >33% and owner has also sold down his holdings similarly to teens percentage. This makes the stock a potential take-private candidate and hence our interest in discussing it today!

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Warner Bros Discovery (Ticker: $WBD) is one of our portfolio names and after last week, it delivered 126% return over 2 years. Well, if we had timed it better, it could have been 126% in 10 months. As such, this was an agonizing win because the stock roller-coastered with no alpha for a long time. We shall go into all the gory details below:

• WBD has one of the best content library globally with iconic franchises like Harry Potter, DC Comics, Game of Thrones amongst many other brands (HBO, Discovery, CNN and more).

• The company is also a strong free cashflow generator and trading at double digit FCF yield was stable and EBITDA growing. This was our investment thesis.

• Its closest competitor, Disney was engaged by activists and we thought US media could become more interesting. WBD was way cheaper than Disney in market cap and hence more interesting.

• WBD is also one of John Malone’s Liberty Global companies and his team has a strong track record of strong execution.

• We wrote and update on WBD in early 2024. Please see below.

Our Full Roller-Coaster Ride

• Background: WBD was formed when Discovery merged with AT&T’s Warner Media c.2022 and was loaded with c.USD66bn of debt. Share price subsequently bobbed up and down violently but ultimately ranged bound from 2022 to 2024.

• This was pure pain and agony which we shall describe further below with our powerpoint slide. Fast forward to 2025, WBD then announced to split into two companies earlier this June.

  8% Value Activist is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.

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Financials (Dec 26)

• Net Sales: 8bn, OP: 0.8bn, Net Income: 0.4bn

• EBITDA: 0.8bn, Free Cashflow (FCF): 0.4bn

• Dividend: 4.5, Dividend Yield: 3.2%

• Net Cash*: c.5bn, Market Cap: c.7bn

*Net Cash: Cash + 50% of Inventory - Short-term debt - Long-term debt

Financial Ratios

• ROE: 7% (currently 3%), ROA: 5% (currently 1%)

• GPM: 80%, OPM: 5-10% (currently 3%)

• EV/EBITDA: 11.5x, EV/FCF: 14.4

• PER: 18.1x, PBR: 0.7x

• FCF Yield: 5.5%

As mentioned, an activist recently launched a campaign against this stock and tried to get onto the board of directors but was rebuffed. Since then, interested market participants and fellow substackers wrote a lot about this name and we have no shortage of deep research.

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The following post is the original write-up for Diageo which we have taken off the paywall. The stock has corrected a fair bit since then, it might be a good time to add. The purpose of this post is to evaluate this name and decide if we should add.

As mentioned in the title, our discussion today is about Diageo, the world’s second largest spirits maker after China’s Moutai. Hopefully it can be the next Reckitt soon (popping 11% after good results) since there are activists circling it like vultures now. Let’s relook at the simple financials.

Simple financials^ (Dec 2025 estimate, USD)

• Sales: 20bn

• EBITDA: 6.5bn, OP: 5.6bn

• Net income: 4bn, FCF: 3bn

• Net Debt: 21bn, Mkt Cap 60bn

Financial Ratios

• ROE: 34% ROA: 8%

• EV/EBITDA 12.7x, PER 15.7x

• GPM: 61%, OPM: 30%

• FCF yield: c.5%, Dividend yield: 3.8%

^ Courtesy of Koyfin, for more on financial acronyms, please see this post.

The stock has completely underperformed since our purchase (yeah, thanks again, Murphy!) in 2024. But potential activist involvement and signs of recovery at peers’ businesses both point towards similar good earnings for the next few quarters at Diageo. As such this post serves to provide an update, redo valuation and decide if we should add.

1. Review

Diageo (Tickers: DGE.LN, DEO.NYSE) was doing really well and we owned it in other portfolios and enjoyed good returns. In fact, we have known this name for c.10 years and followed it closely. It was a strong free cashflow (FCF) compounder but started to underperform around mid 2023.

In late July, the share price continued weakening as Trump’s tariffs weigh on the name as Diageo imports a fair amount of alcohol in the US, its largest market accounting for c.40-50% of profits. In this post, we review what went wrong and what are the lessons learnt.

Entry valuation was not low enough

This portfolio started buying Diageo when share price was >GBP30 (high teens PER and mid teens EV/EBITDA) which on hindsight did not provide enough margin of safety. Also, the assumption was that earnings will keep growing which unfortunately did not materialize and when earnings stagnate, high teens valuations could not sustain share prices. As such the risk of buying even higher valuation stocks (20x or more) would always have higher probability of working against the portfolio.

As we shall see at the end of the post, Diageo continues to trade at teens price earnings today. But after the drastic share price drawdown over the last two years, market participants are speculating that activists might now involved. They could be behind the recent management changes for all we know.

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Today’s name is a FCF generator but it’s not cheap. So it would be difficult for activists to engage this name. Although peripherally, part of its business does benefit from activist actions as we shall discuss.

Our company also benefits from the 1) quantitative easing (QE) years as money poured into the finance industry since then and 2) the tectonic shift to more index based investing over the last twenty years. Here’s the quick glance of the financial numbers:

Simple Financials (Dec 26 estimate*, USD)

• Sales: 15bn, EBITDA: 7.5bn

• OP: 6.5bn, FCF: 6bn

• Net income: 4.5bn, EPS: $13

• Dividend: $4 per share, Yield: 0.8%

• Debt: 11bn (Net debt), Mkt Cap 155bn

Financial Ratios

• ROA: 8%, ROE: 14%

• GPM: 70%, OPM: 40%

• EV/EBITDA: 21.9x (Dec 26), PER: 29.8x (Dec 26)

• FCF yield: 3.7%

*Based on author’s estimates

This company has grown alongside the financial markets and should continue to grow like how picks and shovels sold well during the gold rush. Finance has thrived thanks to decades of quantitative easing and easy money and looks like that’s not gonna change any time soon, tariff tantrums or not.

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This substack discussed QYLP, a covered call ETF for Nasdaq which was an interesting idea but unfortunately it has yet to generate strong positive returns although if we add back the 11% dividend, it is not underwater. Today we shall discuss the second ETF which was touched upon briefly (see post below).

Since we discovered that activists have targeted Swatch and Diageo, perhaps learning more about the GLUX ETF would be a way to better study and understand luxury names. The following two links provide some good data on GLUX:

• https://www.amundietf.nl/en/individual/products/equity/amundi-sp-global-luxury-ucits-etf-eur-c/lu1681048630

• https://www.tradingview.com/symbols/XETR-GLUX/analysis/

The second link from tradingview provides details about the basket of stock holdings that serve to replicate the index and not the actual index constituents. We shall touch upon this technical aspect later in the post.

1. Fundamentals

Luxury names have always fascinated me because they can generated outsized profits by charging an arm and a leg for things are pretty cheap to make. Like bags and shoes. I thought humankind already invented these stuff during pre-historic times. Shouldn’t competition just wipe out any possibility to make good money?

Alas no. It creates the possibilities for wives to burn holes in husbands’ wallets. Just kidding - it’s an opportunity for husbands to express their love!

It is also one of those weird industries that supply-demand vs price relationship doesn’t follow the laws of economics. By right, when producers raise prices, demand comes down. But for luxury goods, demand doesn’t really come down when producers raise prices. Demand goes up when producers raise prices!

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Even Singapore’s United Overseas Insurance is targeted! We hope this substack’s pivot to discuss more activist stories will drive subscription :)

Today, we would like to discuss Swatch. We have looked at Swatch for donkey years and wrote a tonne of materials about it. See below:

https://8percentpa.blogspot.com/search/label/Swatch

Since then, share price underperformed big time. To us, there is no surprise that an activist came in and now trying to shake things up. It might be interesting to do more research now and perhaps add this to the portfolio.

This post will not be a full analysis. More like a preamble. We will keep this short and sweet for now.…

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Here’s the updated financials:

Simple financials (Dec 2026 estimate, USD)

• Revenue: 95bn

• EBITDA: 19bn, EBIT: 15bn

• Net income: 11.5bn, EPS: $8.4

• FCF: 9.5bn (current FCF 8bn)

• Debt: 40bn, Mkt Cap 183bn

Financial Ratios (Updated in May 2025)

• ROE: 50% ROIC: 16%

• EV/EBITDA 11.8x (Dec 26)

• PER 15.9x (Dec 26)

• EBIT margin: 15%

• FCF yield: 5%

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PepsiCo had a bad recent quarter with subdued revenue growth and missing its consensus EPS target of $1.5 (for the quarter). The stock is trading near its 52 week low and as such, this post serves to provide an update, redo valuation and decide if we should add. For reader’s convenience, I have included the link below to the original analysis written almost exactly 2 years ago.

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https://sg.news.yahoo.com/minority-investor-says-uoi-over-014825695.html

Activism is coming into Asia and Singapore. It has already taken Japan by storm. It may take years, or even decades but it is a matter of when, not if. Why? Because tonnes of Asian stocks trade below book. Activists target cheap companies, usually trading below book. In Singapore, >50% of our listed stocks trade below book. We are worse than Japan (which only has 40%).

We have listed stocks trading at 0.03x price to book. More than one. There is Sapphire Corp, China ShenShan Orchard and Fuxing China Group. All trading at 0.03x. (See screenshot below).

Take the case of Fuxing China Group trading at $3.15m which is not enough to buy a 3-bedroom condo in Singapore. The stock is trading at 0.03x book value. What it means is that you can buy the company for $3.15m today (technically, you may need to pay a takeover premium but let’s keep things simple), but the net assets on its balance sheet is worth c.$100m. Isn’t that the bargain of the century?

Alas no. I dug into its financials. $50m of that is account receivables, which is money not paid to Fuxing yet. The other $50m is supposedly depreciated property, plant and equipment: its factories and facilities. Apparently, Fuxing make zippers in China. Someone needs to fly down and check those assets. They may not be there. So, yup, even though its 3c to the dollar, nobody is buying.

But there are real unpolished gems around. Usually companies that are, for one reason or another, trading very cheaply for some time already. That is when activists come in to try to unlock value. Today’s story is about the curious case of United Overseas Insurance (UOI) with an individual activist.

First, let’s look at UOI’s financial numbers:

Simple Financials (Dec 25 estimate, SGD)

• Sales: 100m, Net income: 30m

• Operating Income: 35m, Investment Income: 17m

• Debt: -100m (Net cash), Mkt Cap: 477m

• Investments: c.414m of which 47m in Haw Par shares

Financial Ratios

• ROE: 6.5%, ROIC: 2.6%

• PBR: 1.0x (Dec 25)

• PER: 15.9x (Dec 25)

• Dividend: 23 cents per share, Yield: 2.9%

UOI used to trade below book but has since rallied because the said individual activist called management out via the media. The market got interested and bought the shares up. However, without more firepower, it might be difficult to create genuine change.

That’s the difficulty and complexity about activism. Many things need to fall in place. E.g. Low allegiant shareholder ratio. Latent value that needs to be unlocked. Potential angle to catalyse some transformation and importantly, the core business should be sound and valuations should make sense.

Here’s the usual Fundamentals, Technicals and Valuation framework.

1. Fundamentals

United Overseas Insurance operates a simple business of selling insurance via Singapore’s second largest banking group - United Overseas Bank (UOB) Group. It is a unique bancassurance business which has enjoyed steady growth alongside Singapore’s economy (or perhaps more relevantly, Singapore’s property market). By leveraging on the UOB Group’s infrastructure, UOI has also been able to keep underwriting cost low (no agents and lower IT cost), thereby generating steady underwriting profits.

Actually, both underwriting and investment profits had done well. From what I can tell, UOI had positive investment income for the past few years. These are deduced from the slides below:

It is not clear if other income is investment income. My assumption is yes or likely the bulk of it. The slide above shows it has been positive from 2018-2022 and the next slide shows 2023-24 did well too. Investment profits had grown last year as a function of the stock market.

UOI uses its own inhouse asset management team and Schroders and both adopt conservative investment strategies and have, by and large, made returns. In short, it’s a decent business. Okay, let’s discuss the elephant in the room.

Activism in Singapore: What’s really the crux of the issue here is that an individual activist has called out poor management under UOB’s leadership. He believes that UOI is over-capitalized (>400% capital adequacy ratio) and should sell stuff to return capital to investors and he proposed the following two resolutions:

Resolution 1: To distribute UOI’s 4,274,600 ordinary shares in Haw Par Corporation directly to UOI shareholders.

Resolution 2: To appoint a financial advisor to evaluate strategic options for maximising shareholder value.

As we can expect, UOI threw them out, citing no legal requirement to put these to the vote. What transpired was a tense shareholder meeting which we all get to learn more a little bit more about UOI’s business. The minutes are in the link below.

https://www.uoi.com.sg/assets/web-resources/uoi/pdfs/financial-reports/2025/mins-54th-annual-general-meeting.pdf

Due to the lack of disclosure, it is hard to analyze UOI. What we know is that it runs a profitable general insurance business (after selling the life insurance to Prudential) and pays 2+% dividend yield. It used to be cheaper, but thanks to the spotlight being shone on it now, share price has rallied.

The investment thesis should still be intact though.

Investment Thesis

UOI enjoys an interesting niche general insurance business (Residential mortgage, property, personal accident) in Singapore with its lower-than-industry cost base by leveraging on UOB’s group infrastructure. It enjoys marginal growth alongside the strength of Singapore’s property market. Recent shareholder activism while un-successful would keep management on their toes to continue to increase its dividend payout (currently 47% payout ratio).

Risks

Conversely, the risk is that management decides to do the opposite, since the activist would never gather enough shares to mount any serious challenge to the UOB group (which owns c.60% of UOI). It is a given that UOI will not sell Haw Par shares nor change anything that the activist demanded (even though he may be right, and especially if he is right, that’s how politics work right?). The only hope is that dividend can be raised because the UOB group will also benefit.

Should that not happen, share price will then trade at where it is now and we can only eat the 2+% dividend or worse, the bigger risk is that share price corrects back to a lower level (c.$6.50 from current $7.70). That’s 18% downside!

2. Technicals

Next, technicals. The chart below shows how UOI is trading near its all-time high, again, thanks to activist action. As mentioned, should some drawdown occur, share price could hit $6 or c.28% downside from current levels. During the GFC, the drawdown was c.50%.

3. Valuations

As usual, in this final section, we discuss valuation. Free Cashflow (FCF) is not used to value financial companies so we have to use dividends (DVD) instead. To recap, the earnings row (below) is my invention. It uses dividend, EBITDA and Net income for the respective valuation metrics (Dividend yield, EV/EBITDA and Price Earnings). We then apply the appropriate multiple to the metric.

To illustrate, for Price Earnings Ratio (PER), the row shows SGD30m, which is the net profit and for Enterprise Value (EV), the row shows my estimate of SGD40m for UOI’s EBITDA. With the respective multipliers we have intrinsic value per share of $7.36 and $6.54 respectively.

For the first column, which uses dividend (DVD), UOI is paying out c.SGD15m annually and I have put a 30x multiple which means this stock should trade at 3.33% dividend yield. Looking across the three metrics, we see no upside at current prices. Of course, a lot depends on the multiples used and we can debate that in the comments below.

To conclude, UOI’s curious story continues to develop. Can an activist with just a small percentage share really change things in Singapore like what is happening in US or Europe? Today, the short answer is no. Founding families control their listed companies, they are also powerful management and they probably still have both the media and other shareholders’ support.

As evidenced, UOI’s support ratios during this AGM proxy voting were between 94-99%. But who knows, things could change in a few years. When there is succession, stakes get sold down. Families lose control. Activists come in. That’s what happened to Japan. It might spread to Asia and Singapore!

Huat Ah!

This post does not constitute investment advice and should not be deemed to be an offer to buy or sell or a solicitation of an offer to buy or sell any securities or other financial instruments.

Share 8% Value Activist

Activism had always been around. That’s how Berkshire Hathaway got started in the first place. Warren Buffett bought a big chunk of the company to force things to happen. His legacy started because he was an activist! That was in 1965. Then we saw some action around the 1980s with Barbarians At The Gates. But around the 2000s, that was when modern shareholder activism first started to go into vogue in the US. From 2000 to 2020, US activists really took centre-stage and shook up a lot of companies, including big ones!

Today, the stage is Japan. We have close to 80 activist funds targeting lots of undervalued companies. 7-11 was targeted by activists multiple times and last year we saw how overseas strategic buyer - Couche-Tard, the largest convenient store operator in Canada, wanting a piece of the action. So, on this substack, we are looking at the third Japan activist idea after Okamoto and Mandom. This one revolves around one of Japan’s best known export - animation or in short anime.

Let’s look at the financial numbers:

Simple Financials (Mar 27 estimate, JPY)

• Sales: 525bn, OP: 52.5bn, Net income: 50bn

• EBITDA: 66bn, FCF: 50bn

• Dividend: 42 yen per share, Yield: 1.4%

• Debt: -168bn (Net cash), Mkt Cap: 728bn

Financial Ratios

• ROE: 5%, OPM: 10%

• EV/EBITDA: 8.5x (Mar 27)

• PER: 14.6x (Mar 27)

• FCF yield: 6.9%

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Mandom shares will be bought at JPY1,960, with the total cost of c.80 billion yen which is c.35% over its undisturbed share price (c.JPY1,485 per share).

Mandom has been engaged by multiple activists, notably Hibiki Path Advisors amongst others. This has been a successful stock call although we hoped that the takeover price could be higher. Our blended intrinsic value was JPY2,200 per share.

Nevertheless the portfolio benefited from this transaction, making c.50% return from this name. This portfolio will be taking profit. PT Mandom Indonesia TBK (TCID:IDX, Mkt Cap: c.USD60mn, PER: negative, PBR: 0.5x) is still listed and could potentially be taken private as well.

We have made this post free for all readers, with updated comments in italics. This situation is “live” and new information and future events might render current analysis irrelevant. Please do your own research (D.Y.O.R). Not investment advice.

Following up from the last discussion, we shall analyze another Japanese company trading below book and generating strong free cashflow for the last few years. Again, this company piled up so much cash that it makes up almost half of its market cap. All this while its marketing team creates crazy commercials like the one below:

As usual, financial numbers are as follows:

Simple Financials (Mar 27 estimate, JPY)

• Sales: 80bn, OP: 5.2bn, Net income: 4bn

• EBITDA: 8bn, FCF: 5bn

• Dividend: 42 yen per share, Yield: 3.3%

• Debt: -28bn (Net cash), Mkt Cap: 57bn

Financial Ratios

• ROE: 5%, OPM: 6.5%

• EV/EBITDA: 3.6x (Mar 26)

• PER: 14.3x (Mar 26)

• FCF yield: 8.8%

These numbers are two years out and some improvement in earnings have to be incorporated for the valuation to be this cheap. That said, the assumptions are not aggressive and merely represents normalization and what is conservatively achievable. The firm has achieved this numbers in the past.

1. Background and Business

Mandom (4917 JP), is the largest men’s cosmetics manufacturer in Asia having great businesses such as hairstyle grooming and hygiene care. With its Gatsby brand, Mandom dominates the male hairstyle grooming market and has since branched out to do face care and body care for both men and women.

The company first started out as a perfume company almost 100 years ago but its big break was with its Gatsby’s hair grooming products for men in the 1980s. Then, in the early 2000s, it started expanding out of Japan in Asia and built strong franchises in South East Asia, North East Asia and more recently China.

As with Okamoto, the last investment idea, Mandom has an activist angle. While they do not appear in the shareholder registry, activists are circling this stock (well, it’s certainly delicious with 50% of market cap is cash and strong and growing free cashflow generation) and the company’s allegiant shareholders such as the founding family and banks do not hold a lot of shares.

Next, let’s go through the usual fundamentals and risks.

2. Fundamentals

Mandom is in the Fast Moving Consumer Goods (FMCG) business which we know is highly cashflow generative because its goods are consumables, evokes brand loyalty and therefore generates recurring sales. For Mandom, it is more interesting because the firm competes in the niche of male cosmetics which encompasses hair grooming & hair care, skin care and face care.

The company has also branched into female cosmetics and its portfolio of key brands are now Gatsby and Lucido for men and Bifesta, Pixy, SilkyGirl and Lucio-L for women. As an early mover overseas, it has also grown that business nicely with 50% of its revenue now coming from Asia outside of Japan.

Here’s the investment thesis for Mandom:

Mandom is one of the niche Japanese male cosmetics manufacturer in the lucrative FMCG sector where companies generate strong free cashflow with recurring revenue coming from customers loyal to its brands. It is trading cheaply and there is an activism angle because the company holds a lot of cash and does not have enough allegiant shareholders to protect management against activists. The stock has potential upside of >70% should its business recover to pre-pandemic margins. FCF yield is also strong at c.8%.

As discussed, Mandom started to move out of Japan and into Asia very early on, in the late 1990s. As such, it gained early mover advantage into Asia, China and Indonesia, dominating the men’s hair grooming markets. It splits its businesses into the three segments above: Japan, Indonesia and Other Overseas. As of Mar 2024, the margins were 0.2% for Japan, -5.2% for Indonesia and 13.2% for Other Overseas. Pre-pandemic, the same numbers were 6.5%, 3.6% and 13%. As such, one key positive for Mandom is re-establishing its long term growth trajectory in Asia driven by recovery in the next few years back to pre-pandemic levels.

There are several other positives for Mandom.

Positives

Brand loyalty: Mandom is the undisputed #1 brand in men’s hairstyling with 55% market share in Japan. In Asia, Mandom commands the same market share levels and high brand awareness and loyalty with its Gatsby brand. Needless to say, there isn’t much alternatives out there since this is such a niche segment. The following recommendations below S$15 from Watson’s (Singapore’s big drugstore chain) website says it all:

1. Follow Me: S$3

2. Gatsby: S$5 (average price of full suite of sub-brands)

3. Mandom: S$5

4. Lucido-L: S$6

5. Bigen: S$13

6. Johnny Chop Shop: S$15

Three of the six choices are Mandom’s: Gatsby, Mandom and Lucido. Interestingly, Lucido-L which is meant for ladies also get picked up because there’s just not enough variety. A simple visit to the stores shelves will confirm this. There is really just Mandom / Gatsby. In a sense, users also become loyal by default, since there is no other choice. This is analogous to how Gillette dominated the shaver business for decades.

Cash extraction and potential MBO: As mentioned above, 50% of Mandom’s market cap is cash. There is another JPY7bn which is another 12% of its market cap is Mandom’s 65% stake in PT Mandom Indonesia, which is its listed subsidiary on the Indonesian Stock Exchange. Should the management (i.e. the founding family) wants to remain listed, paying out this cash will boost its share price significantly. They probably should not sell PT Mandom Indonesia, so that 12% is not extractable.

The other more “sinister” plan would probably be taking the company private. The founding family, together with its foundation and employee shareholder association owns c.20% of outstanding shares. Should they decide to take the company private, they would first need to fork out c.JPY70bn or c.USD400m (including c.30% premium over today’s market cap) but effectively, only 1/3 because 50% of the market is cash and they already own 20%. I am sure someone is thinking about this. If it’s a Singaporean name, the family would find ways to trash down the share price further over years, then take it private*, screwing all minority shareholders. Hence, it’s a sinister plan. Hopefully Japanese executives, with more honor and integrity, will not do this.

To prevent this, activists might have to be involved. They would be able to call management out if the takeout price is too cheap. Then again, Mandom’s management has executed well and is attuned to Japan’s push on corporate governance. Mindful of such issues, they would probably think twice about screwing minority shareholders.

* CK Tang, Osim and Koufu amongst other names. CK Tang’s story is portrayed at https://8percentpa.blogspot.com/2009/12/on-bad-management.html

Comment as of Sep 2025: the MBO scenario happened as described. The MBO price is acceptable, in our opinion, but is at the low end of reasonable range after multiple rounds of negotiations. Hibiki Path Advisors will be fighting for higher payout. Excerpts from the publicly released documents:

Tender Offeror submitted seven revised proposals, raising the price incrementally from JPY 1,600 to JPY 1,650, JPY 1,700, JPY 1,750, JPY 1,800, JPY 1,920, and JPY 1,950. 

The JPY 1,950 offer on 5 September 2025 was presented as the "best and final offer". However, the Company countered with a proposal of JPY 2,100 per share. 

Ultimately, on 6 September 2025, the Tender Offeror submitted an eighth proposal of JPY 1,960, stating it had decided to agree to raise the price again to maximise the interests of the Company's general shareholders. 

The Company and the Special Committee accepted this price on 7 September 2025. This final price represents a 360 yen per share increase (22.5%) from the initial proposal. 

Managment

Mandom’s management is the second and third generation scions of the founding Nishimura family. The father and son tag team runs the shop but CEO Ken Nishimura is probably quite powerful, having strong academic and business experience. Their credentials are shown below.

In its annual report, CEO speaks about ESG and the importance of achieving targets. The reports reviewed past mid term plans, where are the lessons learnt and discussed implementations including rationalizing its workforce which we all know is very difficult in Japan. We are highlighting all this to show that management i.e. the found family is progressive and hence not likely to do things that would be unfair towards minority shareholders. But, we never really know, don’t we?

Next let’s discuss some risks with this stock.

Risks

China and Indonesia remains weak: In the next 6-12 months, investors would be looking at these two geographies: China and Indonesia. China has remained weak as the macro economy continue to languish so investors might be more forgivable. That said, Mandom has a strong market position and it is perplexing that recovery has been so muted. It might have to do with its small size (market cap at c.USD380m) and hence its inability to restore its supply chain fast enough.

The bigger issue is Indonesia. Mandom has lost money in Indonesia for 4 years (i.e. since the pandemic struck). It was touted as the next growth driver but now the path to profitability seemed uncertain despite them being the market leader.

Inability to turn things around: By and large, Mandom’s management has executed well over the years. But with Japanese companies, there is always the risk that they would just slack. Sometimes it is hard to pin down the mistakes. After all, Japan is a society that sees the money differently. Management is not motivated to make the next million dollars more than firing their long-time colleagues, friends, buddies.

Mandom did make the effort to outline their KPIs. They are targeting high single digit growth, operating margins and return on invested capital. That’s commendable by Japanese standards. Even if management missed by 10-20%, the stock would do well.

The real risk would be executions such as bad M&As, or bad investment capex, burning up the cash. Or it could be drastic failure in business operations, with no improvement in revenue, margins and ROICs. But then again, this is status quo and that’s the reason why share price is where they are right now. In other words, share price is not factoring in any improvement. If things do improve, we get the upside.

3. Technicals

The chart below shows that the market cap went as high JPY180bn before the pandemic hit. That’s 3x. Today, we are at rock bottom. We are way below the pandemic lows. The last time share price was this low was more than 10 years ago. And before that, the GFC, when share price was JPY900 and market cap was JPY42bn (about 30% below today’s price).

Regardless of how we cut it, the risk reward profile is very attractive. We can think of it has 3x upside vs 30% downside (using the GFC low) or perhaps close to 100% upside vs <10% downside using JPY100bn market cap reached around 2021. Next, valuations!

4. Valuations

In this final section, we will discuss valuation. Again, the multiples are undemanding using Free Cashflow (FCF) and Price Earnings Ratio (PER) at 15x and EV/EBITDA at 10x. When we look at its global peers, we have PER at 23x, EV/EBITDA at 13x on average. Incorporating say a 20% Japan discount, our multiples are still vaid. As with Okamoto though, we added back the significant cash (JPY28bn) for FCF and PE which gives us a blended intrinsic value of JPY2,200 or 74% upside. If we do not consider the cash, the blended intrinsic value drops to JPY1,800, still with 40% upside.

As alluded to above, in the peer comparison table below, Mandom valuations are significantly below peers but that’s also partly because both operating margins (OPM) and return on equity (ROE) had been dismal. As such, we need activists to hold management accountable such that they would achieve the above-mentioned mid term targets.

To conclude, Mandom (4917 JP) is a buy at current share price. On the upside, we have the 74% based on valuations, and 1-3x based on technicals. Should activism drum things up, management does an MBO which ironically means that upside could be capped at the usual takeout premium of 30-40%. On the downside, as discussed, both valuation and technical point to very limited downside unless we use the GFC lows (c.30% downside from here) which could be too conservative and not realistic.

The portfolio will be initiating a small position.

Huat Ah!

This post does not constitute investment advice and should not be deemed to be an offer to buy or sell or a solicitation of an offer to buy or sell any securities or other financial instruments.

We wrote an earlier post on this covered call ETF. We discussed how it could be an interesting hedged play to benefit from the continuing rise of the Magnificent Seven and NASDAQ. Today, we will go through the fundamentals, technicals and valuation more deeply.

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^ Japan has almost 4,000 listed companies

As usual, financial numbers are as follows:

Simple Financials (Mar 26 estimate, JPY)

• Sales: 115bn

• Net income: 8bn

• FCF: 7bn

• Dividend: 120 yen per share, Yield: 2.4%

• Debt: -35bn (Net cash), Mkt Cap 90bn

Financial Ratios

• ROE: 8%, OPM: 9%

• EV/EBITDA: 4.6x (Mar 26)

• PER: 11.5x (Mar 26)

• FCF yield: 8.3%

The company is already cheap looking at the first cut here. But as we shall discuss, we will see how ridiculously cheap it actually is. The question is whether value could be unlock, which we shall also debate and comments are welcomed!

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The stock we are discussing today is a Software-As-A-Service (SAAS) enterprise software giant which is mission critical to many global companies. It is also embracing A.I. and has tasked the above A.I. created “real person” avatar to deal with its investor relations.

Its numbers are as follows:

Simple Financials (Dec 2025-26 estimate, EUR)

• Sales: 35bn, 38bn

• Net income: 4bn, 6.4bn

• FCF: 8bn, 10bn

• Dividend: S$0.12, Yield: 4.5%

• Debt: Net Cash, Mkt Cap >300bn

Financial Ratios

• ROE: 14%, OPM: 23%

• EV/EBITDA: 27x (Dec 26)

• PER: 40x (Dec 26)

• FCF yield: 3.2%

This company used to trade at 20x PE but that has expanded to 30x and now 40x. Valuation is a big stretch but perhaps the growth and moat justifies.

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Here’s what happened:

• I was roaming the streets of Myeongdong, Seoul, South Korea where street vendors sell “branded” T-shirts with Chanel, Gucci, Moncler, Stüssy and logos of other big brands for $10. A tiny fraction of what real goods are sold for. These are different from what we get in Thailand and other ASEAN countries in the old days. The quality is the same as the real ones. The only difference is that you, yourself know you did not buy it from the actual branded shops.

• While travelling to Indonesia, I noticed the Polo brand being sold at their duty free shops, which means they cannot be fake shops (or else Europe will go after Indonesia). Then I realized there is some history between Indonesia’s Polo and actual Polo Ralph Lauren which we are familiar with. Long story short, the Indonesian Polo is real, just different, with the same logo and all and it sells for $50, which is again a fraction (a bigger fraction though) for what the other Polo Ralph Lauren sells for.

  

• In China, you can buy luxury watches that are indistinguishable from the real ones. If you bring it to the official shops for repair, they may not figure it out. That is how good fake technology has improved. In another encounter, my friend bought a fake Apple Ultra, the highest end Apple Watch, from China for $30. It is also indistinguishable from the real one from the outside, except that it only works on Android.

• In Japan, over the last two years, we can buy these luxury goods from the real shops at 10-20% discount because of crazy movements of global exchange rates, inventory quota differences between countries which led to more selections in Japan because traditionally, Japanese bought a lot of these stuff. These discounts can amount to thousands of dollars.

So here’s the question, why we are paying a few different prices essentially for the same stuff? The Apple Ultra would be the best example. In China, it costs $30 and in Japan, it’s $900+ which is c.15% cheaper than the retail price in Singapore.

The Indonesia situation makes things even more mind-blogging. In a hypothetical situation, say someone cuts a deal with Apple and says, I will sell Apple Watch only in my country, but I want to sell it at $250. Arbitrarily, for some inexplicable reason, Apple says yes, then as tourists, we can go there and buy it for $250. This is exactly what happened with Polo in Indonesia.

When we extrapolate the above to all luxury goods, the question of what are we actually paying for is being brought to the front and we cannot avoid it. The cost to make the stuff is not much. Again, in the case of the Apple Watch, it’s probably less than $30. Yet it sells for >$1,000 in Singapore. That’s why Apple is the biggest company in the world.

I guess to start answering the question in the title, when we break it all down, we are paying luxury products for:

1. The cost of actually making the product

2. The logistics of bringing to the store front

3. The salesperson’s salary

4. Implicit warranty (insurance)

5. Our own satisfaction

To risk stating the obvious, when it’s completely fake and pirated, what is happening is that the same factory making these real luxury goods can easily make another one without the real consigner knowing, slap the brand and ship it out to South Korea, to China or anywhere else in the world willing to sell fake goods.

This is the real cost: cost of #1 - production cost and #2 - logistics cost above. Based on my experience as an analyst looking across luxury businesses, it’s usually 20-30% of the selling price. We can infer by looking at gross margins which is usually at 70-80% of sales.

The rest, #3-5, making up the majority of what we actually pay for, is all fluff. With the final point #5 being the most pertinent. In essence, we are paying a lot for happiness. When we buy that bag or that watch from Ginza, at retail price, which is at 20% discount due to world circumstances, we get both the satisfaction of buying some luxury good and the happiness it’s at a 20% discount.

So what exactly are luxury goods?

In my mind, it is a product of a fantastic business model to ask people to pay and buy something overly expensive, to satisfy their own ego, thereby making them happy. The buyers are happy, because they can show everyone the can afford it, the salesperson is happy because of the commission, the brands are happy and everyone else up and down the supply chain are also happy to get a cut.

But what about the design, the fashion style, the fit?

Here’s what I think, when people say they buy because they like the brand, the style and what not. It’s all bullshit. If the same T-shirt can be bought from Myeongdong at fraction or Indonesia at half price, or Ginza at a discount or Singapore at full price, what exactly is the point of paying up?

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Simple financials (Dec 2025 estimate, USD)

• Sales: 3,200m

• EBITDA: 850m and OP: 800m

• FCF: 900m and NI: 200m

• Dividend Yield: and FCF Yield: 1.8%

• Net cash: 2,000m, Mkt Cap 43,900m

Financial Ratios

• ROE:18%, OPM: 25%

• EV/EBITDA: 49.8x (Dec 25)

• EPS CAGR: 50% PSR: 13.7x

• PER: 65.6x (Dec 25) PEG: 1.3x

• FCF yield: 1.8%

Valuations are way too high for traditional value investors but perhaps there is a different angle for this unique company.

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Simple financials (Dec 2025 estimate, USD)

• Sales: 23.5bn and EBITDA: c.11bn

• OP: c.10bn, Net Income: c.9bn

• FCF: 9bn

• Market Cap: 250bn

• Net cash (c.4bn)

Financial Ratios

• PBR: 17x and ROE: 35%

• EV/EBITDA: 24x

• PER: 29x

• Revenue growth (5Y): 15%

• FCF yield: 3.3%, Dividend Yield: 0%

Many substackers and youtubers have written and spoken about Adobe and I think it’s not necessary to reinvent the wheel. I have added links to good materials out there. The following substack posts on Adobe would be a good start:

This first deep dive post covers most aspects which is much better than how yours truly can.

The Art of Hitting Bombs

Company deep-dive no 5: Adobe

Since Shantanu Narayen steered Adobe towards a cloud-based, service-oriented business model in 2013, the company has seen remarkable growth. This shift from selling packaged software to offering soft…

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2 years ago · 1 like · The Art of Hitting Bombs

The next post talks about how AI is transforming the world and how Adobe is leveraging on this megatrend.

Scaling SaaS -- from SaaStr

The 5 Ways AI Will Transform Creativity with Adobe CSO & EVP Scott Belsky

Adobe has been developing with AI in its tools for almost a decade. In the last couple of years, it’s been clear that something cataclysmic is happening in the creative industry…

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2 years ago · 6 likes · Jason M. Lemkin 🦄

The last most is more technical from Morningstar, it covers the recent quarter earnings, financial strength and bull / bear points:

https://www.morningstar.com/stocks/after-earnings-is-adobe-stock-buy-sell-or-fairly-valued-3

1. Fundmentals

Next, we would provide a summary of the thesis and three short positives and go straight into technicals and valuations given the amount of materials available online. The investment thesis is as follows:

Adobe (ADBE US) is one the largest creative software companies providing essential solutions to businesses, prosumers and individuals in the creative sector. It has no clear competitor in scale and enjoys near monopolistic advantage in the world of creative software. Its iconic products such as Photoshop, Illustrator and Acrobat are indispensable to creators and its subscription business rakes in recurring revenue (c.90% of total revenue) which translates to high OPM (c.45%) and strong free cashflow (FCF) generation over time.

Seeking alpha also provides a good summary of Adobe’s businesses below:

https://seekingalpha.com/article/4529078-adobe-the-essential-investment-thesis

As you can see, much has been analyzed about Adobe, so there isn’t much new insights we can add here. I will simply reiterate the following few important positives.

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