Japanese FDIs eye Ann Joo, E&O, Tasco?

KUALA LUMPUR: UOB Kay Hian Malaysia Research is predicting a continuing momentum to the rising trend of foreign direct investments (FDI) and acquisitions of Bursa-listed companies by Japanese companies.

The research house said on Tuesday, Aug the risings FDIs is due to the strong yen exchange rate, sluggish domestic prospects, and the need to geographically diversify after March 2011 tsunami and earthquake.

“Potential beneficiaries include potential targets for stake acquisitions Ann Joo, E&O Bhd and QL Resources. Apart from this, logistics provider Tasco Berhad, which Japan’s logistics giant NYK owns a strategic stake, is benefitting from the rising establishment of Japanese manufacturers,” it said.

UOB Kay Hian Research said from January 2009 to July 2011, corporate Japan engaged in 513 M&A deals valued at US$14.2 billion in emerging Asia, primarily India, China, Malaysia and Indonesia.

Japanese FDI into Malaysia rose 537% on-year in 2010 vesus Southeast Asia’s 109.1% growth. Japan accounted for over 12% of net FDI into Malaysia (after rising 81.8%, 4.2% and 71.8% in 2008-10), and 34% of M&A deals in 2010.

In the recent years, a noticeable rise in acquisitions recently has demonstrated the Japanese companies’ appetites in acquiring strategic or controlling stakes in Bursa-listed companies from a diversified range of industries.

This research house said this was unlike the phenomenon two decades ago when most Japanese companies were focused on the electronics and electrical-related sector (in reaction to the Plaza Accord in 1985 which led to a multi-year rise in the yen).

In emerging Asia, Japanese investors are eyeing the steel, consumer, financial and energy.

As for Malaysia, the recent significant Japanese forays into Malaysia involve mainly the financial, consumer, healthcare industries, and “we expect more meaningful involvement in the heavy industries where Malaysia provides logistics and energy cost comparative advantages”.

UOB Kay Hian Research said some Japanese acquirers were willing to pay hefty premiums for control, as supported by Asahi Group Holdings Ltd’s recent agreement to acquire local Pepsico bottler Permanis for 10.7 times trailing price-to-book value as well as strategic stakes.

Note that Mitsui & Co Ltd bought a 30% stake in Integrated Healthcare Holdings Sdn Bhd from Khazanah Nasional Bhd for RM2.3 billion.

Key ingredients for sought-after companies: a) proxies to domestic or regional consumption, b) important regional value chain, and c) companies which are already trading with Japanese companies (hence familiarity).

These criteria suggest that selective financial, consumer and steel companies are key potential targets for acquisitions/strategic shareholdings, with the latter sector serving as an important distribution hub – as supported by new setups by Brazil’s Vale (iron ore palletising plant and regional distribution hub) and Acerinox-Nisshin JV (a Spanish-Japan venture to set up one of Asia’s largest stainless steel plants).