Another Try

Another Try
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Earlier this week Japan Display (6740,JP) converted the MOU it had signed with its largest shareholder Ichigo Trust (2337.JP) into an official agreement, much of which will be executed next month.  The deal, which is comprised of:

• New warrant issuance (3.852 billion underlying shares for ¥95.6 billion or $662.5m US)
• The transfer of certain IP from JDI to Ichigo (LCD & OLED)
• The sales of the JDI Mobara fab to Ichigo and partial leaseback
• The repayment of ¥65b in loans from Ichigo from the Mobara sale proceeds.
• Ichigo’s surrender of previous warrants at zero value

Assuming that the warrants are exercised (¥25 exercise price – Current Price ¥20), Ichigo’s ownership will increase from 78.2% to 91.6%.  The exercise period extends from 7/15/25 to 11/30/28.  The proceeds from the warrant sales will be allocated (approximately):

• 45% for working capital through 2028
• 25% for Display, Sensor & Advanced Packaging Capex
• 10% for R&D and technology commercialization
• 5% to build out JDI IP
• 5% for strategic partnerships
• 5% for digital improvements (ERP, etc)

There is little that can be said at this point as JDI has made numerous attempts to ‘fix’ the problems that have been besetting the company for the last 10 years.  Way back in 2016 it was rumored that Apple (AAPL) was considering converting at least some of the LCD iPhone displays that were supplied to it by JDI and others to OLED.  While that did not happen until late in 2017, Japan Display management took the head-in-the-sand approach, assuming OLED was just a fad, which ultimately proved incorrect.  Since then JDI has made a number of attempts to find a new technology path but has been unable to find anything that might become an offset to its currently almost non-existent display business.  The company does have some potential photolithographic OLED material deposition IP but has been unable to find a partner to scale the process.
Current management has certainly taken steps to reduce costs and tail off money-losing businesses, but building traction for new processes or products is both time-consuming and expensive, and given the turmoil that is the everyday meat and potatoes of the CE space, this most recent financing might be enough to carry the company through the next 2 ½ years.  That said, it is just a band-aid unless JDI can get one of its new ideas, concepts, processes, or products to stick, a task even the big boys and girls are having trouble with currently.

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