Japan Specialist

Mark Chadwick

Thematic (Sector/Industry)

<ul>
<li>The Nikkei traded up half a percentage point this week, while the JPY strengthened 3% to Y127/$</li>
<li>US stocks (and hence global) rallied after data showed that inflation cooled in December, easing pressure on the Fed. </li>
<li>Lower inflation, interest rates, and China's reopening are providing a decent backdrop for Japanese equities</li>
</ul>


The Nikkei traded up half a percentage point this week, while the JPY strengthened 3% to Y127/$
US stocks (and hence global) rallied after data showed that inflation cooled in December, easing pressure on the Fed. 
Lower inflation, interest rates, and China's reopening are providing a decent backdrop for Japanese equities


Japan Weekly | Tokyo Electron, 7&I, Fast Retail

Equity Analyst, LightStream Research

Oshadhi Kumarasiri

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/seven-i-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:1041:1" rel="noopener">Seven &amp; I Holdings (3382 JP)</a>'s Q3 OP of ¥160.1bn was a significant surprise to the upside with consensus OP at ¥130.2bn and us expecting around ¥125-130bn.</li>
<li>This was mostly driven by an unexpected upside to the retail fuel margin while gasoline prices have come down by more than 34%.</li>
<li>Nevertheless, we would expect this temporary misalignment in retail fuel margin to correct over the next few quarters, resulting in around 35-40% downside to the company’s valuation multiples.</li>
</ul>



Seven &amp; I Holdings (3382 JP)'s Q3 OP of ¥160.1bn was a significant surprise to the upside with consensus OP at ¥130.2bn and us expecting around ¥125-130bn.
This was mostly driven by an unexpected upside to the retail fuel margin while gasoline prices have come down by more than 34%.
Nevertheless, we would expect this temporary misalignment in retail fuel margin to correct over the next few quarters, resulting in around 35-40% downside to the company’s valuation multiples.


Seven & I’s Valuation Nears Breaking Point

<ul>
<li>We would be closing our 2021 high-conviction long trade on <a href="https://www.smartkarma.com/entities/seven-i-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:1041:1" rel="noopener">Seven &amp; I Holdings (3382 JP)</a> before they release 3QFY23 results next week.</li>
<li>Although we are not expecting the company to miss consensus estimates this time around, we are expecting significant downside risks to Seven &amp; I’s US business throughout the year.</li>
<li>Given that shares went nowhere after 12% revenue and 1% OP beats in the previous quarter is a good indication that the upside is limited.</li>
</ul>


We would be closing our 2021 high-conviction long trade on Seven &amp; I Holdings (3382 JP) before they release 3QFY23 results next week.
Although we are not expecting the company to miss consensus estimates this time around, we are expecting significant downside risks to Seven &amp; I’s US business throughout the year.
Given that shares went nowhere after 12% revenue and 1% OP beats in the previous quarter is a good indication that the upside is limited.


2021 High Conviction Seven & I: Major Headwinds Deflected By The Yen Depreciation, Upside Is Limited

Expert on Japan Retail and Consumer Markets, JapanConsuming

Michael Causton

Expert on Japan Retail and Consumer Markets

Real Insight on Japanese Consumer Markets

JapanConsuming

JapanConsuming is a specialist research firm producing intelligence on Japanese retail and consumer markets. Founded in 2000, JapanConsuming has become the leading provider of insights on Japanese retailers and consumer trends to retailers, brands, government agencies and investors. As well as a highly regarded monthly report on the market, JapanConsuming produces in-depth reports on retail sectors, seminars on key trends and telephone consulting to investors on trends and retailers.

JapanConsuming was founded by Michael Causton and Roy Larke. 

<ul>
<li>Nitori dominates in home decor and furniture but now wants to become a top 10 fashion retailer through its N+ chain targeting older women. </li>
<li>It will raise the rate of new stores to 30 a year and then to up to 100 a year as it reaches scale. </li>
<li>Will it be the Uniqlo for the middle-aged? If so it could own a chunk of a segment worth an estimated ¥2.5 trillion.</li>
</ul>


Nitori dominates in home decor and furniture but now wants to become a top 10 fashion retailer through its N+ chain targeting older women. 
It will raise the rate of new stores to 30 a year and then to up to 100 a year as it reaches scale. 
Will it be the Uniqlo for the middle-aged? If so it could own a chunk of a segment worth an estimated ¥2.5 trillion.


Nitori to Ramp up N+ Clothing Chain – ¥500 Billion in New Sales?

<ul>
<li>As the year draws to a close, we took time to assess the effectiveness of our high-conviction calls made during the past two years.</li>
<li>With further dividend hikes looking increasingly possible, our 2022 high-conviction call, <a href="https://www.smartkarma.com/entities/japan-tobacco-inc" target="_blank" data-smartkarma-citation="entities:13498:1" rel="noopener">Japan Tobacco (2914 JP)</a> has more room to run this year.</li>
<li>However, it’s probably the right time to take profits from our 2021 high-conviction trade, <a href="https://www.smartkarma.com/entities/seven-i-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:1041:1" rel="noopener">Seven &amp; I Holdings (3382 JP)</a> as the US gas-stations profitability maxed-out in the last quarter.</li>
</ul>


As the year draws to a close, we took time to assess the effectiveness of our high-conviction calls made during the past two years.
With further dividend hikes looking increasingly possible, our 2022 high-conviction call, Japan Tobacco (2914 JP) has more room to run this year.
However, it’s probably the right time to take profits from our 2021 high-conviction trade, Seven &amp; I Holdings (3382 JP) as the US gas-stations profitability maxed-out in the last quarter.


2021 & 2022 High Conviction Review: Time’s Up For Seven & I But Japan Tobacco Has More Room to Run

Japan

Seven & i Holdings Co., Ltd. is a holding company which was established through the merger of Ito-Yokado Co., Seven Eleven Japan Co., and Denny's Japan. The Company plans, manages, and operates mainly convenience stores, supermarkets, and department stores.

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Seven & I Holdings (3382 JP)

Japan Weekly | Tokyo Electron, 7&I, Fast Retail

We highlight stocks that have impacted the Japanese market this week. Overall, equities were buoyed by a softening of US inflation rates and...

Mark Chadwick

Seven & I’s Valuation Nears Breaking Point

Much to our surprise, 7-Eleven’s retail fuel margin rose by 4.3 cents QoQ to exceed our estimate by 7.7 cents per gallon and lifted the segment’s...

Oshadhi Kumarasiri

2021 High Conviction Seven & I: Major Headwinds Deflected By The Yen Depreciation, Upside Is Limited

Down more than 34% since June 2022, gas price poses the biggest threat to 7-Eleven’s US business performance. Based on retail fuel prices during...

Oshadhi Kumarasiri

Nitori to Ramp up N+ Clothing Chain – ¥500 Billion in New Sales?

Nitori has been underestimated before and now apparel retailers believe Nitori doesn't have the experience to take them on. They are wrong. It...

Michael Causton

2021 & 2022 High Conviction Review: Time’s Up For Seven & I But Japan Tobacco Has More Room to Run

With further dividend hikes looking increasingly possible, our 2022 high-conviction call, Japan Tobacco has more room to run this year. However,...

Oshadhi Kumarasiri

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