First Read MITSUKI & CO Moves to strengthen its middle game

Research evidence excerpt

First Read MITSUKI & CO Moves to strengthen its middle game

tate business reforms free from market constraints, while also expanding 03/27E 351.6 347.2

opportunities for operational collaboration with Mitsui & Co.'s logistics, mobility and 03/28E 352.1 363.4

financial businesses. The acquisition cost of about $3.8bn, through a joint investment 03/29E 362.4 393.9

with Mitsui & Co.'s share yet to be determined, is likely to be funded from its

management allocation framework. Harunobu Goroh

Analyst

harunobu.goroh@ubs.com

Allocating management resources toward middle-risk/returns & immediate +81-3-5208 6215

returns

In our view, this transaction can be classified as a middle-risk/returns & immediate

returns deal. It represents an additional investment in an existing investee with which the

company has been involved for many years, and management has a deep

understanding of its business model and earnings characteristics. If completed, the

amount consolidated into the income statement would increase immediately, and we

would expect growth to accelerate through greater decision-making flexibility as well as

enhanced returns from synergies with Mitsui & Co.'s network. We believe the next step

will be the presentation and execution of specific measures to strengthen earnings and

capture synergies. We also believe Mitsui & Co. has historically shown a bias towards

allocating management resources to high-risk/returns & medium- to long-term areas,

characterised by a strategy of pursuing higher returns while increasing beta. While

additional measures will be required for this deal to translate directly into higher ROIC,

we believe its significance lies in representing a step towards lowering COE as part of the