Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>Late Tuesday 16 March 2021, the Nikkei carried an article which said that today <a href="https://www.smartkarma.com/entities/imperial-hotel-ltd" target="_blank" data-smartkarma-citation="entities:18742:1" rel="noopener">Imperial Hotel (9708 JP)</a> had decided to renovate its flagship hotel Imperial Hotel Tokyo in Uchisaiwaicho, Tokyo, on the eastern side of Hibiya Park and just off what used to the southern extension of the imperial palace moat.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/194/803/original/953px-Imperial_Hotel_Tokyo.jpeg?1615895144" class="editor-image img-responsive" data-smartkarma-image-id="194803"></figure><div style="text-align: right;" class="content-caption">source: Kakidai, 29 Jan 2012 (own work)</div></section><p>This is the third iteration of the Imperial Hotel after the the last one, designed by Frank Lloyd Wright and built in 1922, replacing Yuzuru Watanabe's beautiful structure built in 1890, was taken down in 1967. The current version opened in 1970 and has stood for more than 50 years.</p><p>The article said that the company had decided to rebuild the hotel in line with ongoing redevelopment in the area, since the existing facilities were aging. The goal is to make the Imperial Hotel a central part of yet another "branded" prime location in Tokyo. An announcement is expected this month. The company <a href="https://www.imperialhotel.co.jp/j/company/pdf/20210316.pdf#zoom=100" target="_blank" rel="noopener">announced</a> late in the evening that the news shown in the media was not released by them, and while they are considering rebuilding the hotel, nothing has been decided yet. </p><p>The article says that the 31-story mixed use tower next to the current hotel will be rebuilt by 2030 and the main hotel asset will be rebuilt by 2036. </p><p>In the first nine months of this fiscal year, revenue has dropped by 62% - a dramatic drop to be sure - but not surprising given the lack of inbound tourists. The hotel has started renting out serviced apartments for those who think it would be cool to WFH in in a prime central location. </p><p>For those who are keen observers of that area of Tokyo, this is a long-awaited development. </p><p>And it behooves one to think of the possibilities. One significant possibility in my mind is that Imperial Hotel does not remain independent. </p>

Late Tuesday 16 March 2021, the Nikkei carried an article which said that today Imperial Hotel (9708 JP) had decided to renovate its flagship hotel Imperial Hotel Tokyo in Uchisaiwaicho, Tokyo, on the eastern side of Hibiya Park and just off what used to the southern extension of the imperial palace moat.source: Kakidai, 29 Jan 2012 (own work)This is the third iteration of the Imperial Hotel after the the last one, designed by Frank Lloyd Wright and built in 1922, replacing Yuzuru Watanabe's beautiful structure built in 1890, was taken down in 1967. The current version opened in 1970 and has stood for more than 50 years.The article said that the company had decided to rebuild the hotel in line with ongoing redevelopment in the area, since the existing facilities were aging. The goal is to make the Imperial Hotel a central part of yet another "branded" prime location in Tokyo. An announcement is expected this month. The company announced late in the evening that the news shown in the media was not released by them, and while they are considering rebuilding the hotel, nothing has been decided yet. The article says that the 31-story mixed use tower next to the current hotel will be rebuilt by 2030 and the main hotel asset will be rebuilt by 2036. In the first nine months of this fiscal year, revenue has dropped by 62% - a dramatic drop to be sure - but not surprising given the lack of inbound tourists. The hotel has started renting out serviced apartments for those who think it would be cool to WFH in in a prime central location. For those who are keen observers of that area of Tokyo, this is a long-awaited development. And it behooves one to think of the possibilities. One significant possibility in my mind is that Imperial Hotel does not remain independent. 

Imperial Hotel (9708) - Redevelopment Might Hide an LBO Story

<p>True to the sentiment expressed by the <a href="https://www.smartkarma.com/entities/idemitsu-kosan-co-ltd" target="_blank" data-smartkarma-citation="entities:109:1" rel="noopener">Idemitsu Kosan (5019 JP)</a> Finance Dept chief who spoke at the earnings news conference last week, Idemitsu Kosan did <em>not</em> change the price on its ¥2450/share Tender Offer for <a href="https://www.smartkarma.com/entities/toa-oil-co-ltd" target="_blank" data-smartkarma-citation="entities:11021:1" rel="noopener">Toa Oil Co Ltd (5008 JP)</a>.</p><p>Yesterday, the Tender Offer closed without fanfare. </p><p>Today Idemitsu announced the results (<a href="https://ssl4.eir-parts.net/doc/5019/ir_material9/154414/00.pdf" target="_blank" rel="noopener">English</a>, <a href="https://www.idss.co.jp/content/100034505.pdf" target="_blank" rel="noopener">Japanese</a>). Because Idemitsu already owned 50+% it only needed 2,058,875 shares which was 16+% or roughly a third of the minority to get to 66.7% to squeeze out remaining minority shareholders. Idemitsu got 470,668 shares, or 3.82%. </p><p>In my first insight <a href="https://www.smartkarma.com/insights/idemitsu-launches-lowball-tender-offer-for-subsidiary-toa-oil-5008" target="_blank" data-smartkarma-citation="insights:46384" rel="noopener">Idemitsu Launches Lowball Tender Offer for Subsidiary Toa Oil (5008)</a>, I showed what I thought the shareholder structure breakdown for support looked like. In that table, I suggested at a minimum, it was likely to get support from financial and corporate crossholders 483,000 shares) and from directors (13,500 shares). </p><p>They did not even get that much. </p><p>Cornwall Capital, which had climbed from 18+% to 26.5+% during the course of the Tender Offer obviously did not tender, but neither did 99% of the other non-crossholder-held shares. </p><p>This was an enormous failure for Idemitsu. </p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/189/093/original/Screenshot+2021-02-16+at+8.26.07+PM.png?1613478380" class="editor-image img-responsive" data-smartkarma-image-id="189093"></figure></section><p>What next? </p><p>Read on.</p>

True to the sentiment expressed by the Idemitsu Kosan (5019 JP) Finance Dept chief who spoke at the earnings news conference last week, Idemitsu Kosan did not change the price on its ¥2450/share Tender Offer for Toa Oil Co Ltd (5008 JP).Yesterday, the Tender Offer closed without fanfare. Today Idemitsu announced the results (English, Japanese). Because Idemitsu already owned 50+% it only needed 2,058,875 shares which was 16+% or roughly a third of the minority to get to 66.7% to squeeze out remaining minority shareholders. Idemitsu got 470,668 shares, or 3.82%. In my first insight Idemitsu Launches Lowball Tender Offer for Subsidiary Toa Oil (5008), I showed what I thought the shareholder structure breakdown for support looked like. In that table, I suggested at a minimum, it was likely to get support from financial and corporate crossholders 483,000 shares) and from directors (13,500 shares). They did not even get that much. Cornwall Capital, which had climbed from 18+% to 26.5+% during the course of the Tender Offer obviously did not tender, but neither did 99% of the other non-crossholder-held shares. This was an enormous failure for Idemitsu. What next? Read on.

Toa Oil (5008) - The Dog Has Caught the Car, But Beware Mangalores

'Quantamental' Japan Specialist, LightStream Research

Campbell Gunn

'Quantamental' Japan Specialist

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.

Thematic (Sector/Industry)

<div><p style="text-align: center;"><strong>• RESULTS &amp; REVISIONS SUMMARY - 10th FEBRUARY •</strong></p></div><div><p>Of Wednesday's 477 results announcements, 70% scored positively for earnings momentum despite trailing revenues falling by 2.1% on average and a 3.5 point decline in operating margins. 11% of companies were in the red for the quarter.  Just 61% of the 204 annual forecasts/revision announcements scored positively, and the average Forecast/Revision score was +2.9 points.</p></div><div><p style="text-align: center;"><strong>• BEST &amp; WORST •</strong></p></div><div>
<p>The 'best' larger-cap announcements came from <a href="https://www.smartkarma.com/entities/rinnai-corp" target="_blank" data-smartkarma-citation="entities:1303:1" rel="noopener">Rinnai (5947 JP)</a>, <a href="https://www.smartkarma.com/entities/inpex-corp" target="_blank" data-smartkarma-citation="entities:20665:1" rel="noopener">Inpex (1605 JP)</a>, and <a href="https://www.smartkarma.com/entities/toyota-motor-corp" target="_blank" data-smartkarma-citation="entities:73:1" rel="noopener">Toyota Motor (7203 JP)</a>; the 'worst' were from <a href="https://www.smartkarma.com/entities/mitsubishi-estate-co-ltd" target="_blank" data-smartkarma-citation="entities:566:1" rel="noopener">Mitsubishi Estate (8802 JP)</a>, <a href="https://www.smartkarma.com/entities/nippon-paint-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:7387:1" rel="noopener">Nippon Paint (4612 JP)</a> and <a href="https://www.smartkarma.com/entities/tokyo-electric-power-co-inc" target="_blank" data-smartkarma-citation="entities:15457:1" rel="noopener">Tokyo Electric Power (9501 JP)</a>.  For more, see the <strong>DETAIL</strong> section below.</p>
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/188/286/original/2021-02-12_05-27-56.png?1613075287" class="editor-image img-responsive" data-smartkarma-image-id="188286"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/188/287/original/2021-02-12_05-28-34.png?1613075326" class="editor-image img-responsive" data-smartkarma-image-id="188287"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/188/288/original/2021-02-12_05-29-12.png?1613075365" class="editor-image img-responsive" data-smartkarma-image-id="188288"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/188/289/original/2021-02-12_05-30-04.png?1613075416" class="editor-image img-responsive" data-smartkarma-image-id="188289"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/188/290/original/2021-02-12_05-30-41.png?1613075454" class="editor-image img-responsive" data-smartkarma-image-id="188290"></figure></section><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/188/291/original/2021-02-12_05-31-25.png?1613075496" class="editor-image img-responsive" data-smartkarma-image-id="188291"></figure></section><p></p>
</div>

• RESULTS &amp; REVISIONS SUMMARY - 10th FEBRUARY •Of Wednesday's 477 results announcements, 70% scored positively for earnings momentum despite trailing revenues falling by 2.1% on average and a 3.5 point decline in operating margins. 11% of companies were in the red for the quarter.  Just 61% of the 204 annual forecasts/revision announcements scored positively, and the average Forecast/Revision score was +2.9 points.• BEST &amp; WORST •
The 'best' larger-cap announcements came from Rinnai (5947 JP), Inpex (1605 JP), and Toyota Motor (7203 JP); the 'worst' were from Mitsubishi Estate (8802 JP), Nippon Paint (4612 JP) and Tokyo Electric Power (9501 JP).  For more, see the DETAIL section below.



🇯🇵 JAPAN • Results & Revisions Update 02/​10 - Rinnai, INPEX, Toyota, Nippon Paint

<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/693/original/2020-09-14_09-50-37.png?1600044664" class="editor-image img-responsive" data-smartkarma-image-id="158693"></figure><div class="content-caption">Source for all charts &amp; tables except as stated: Japan Analytics</div><p><strong>EQUITY-DRIVEN</strong> - Japan's aggregate Shareholders' Equity has appreciated by 45% since 2014 - an annual rate of 5.5% and has been one of the key achievements of the 'Abe era'. For the five years before 2012, Shareholders Equity was unchanged, buffeted by the 2008/9 financial crisis and the 3/11.  Although the equity market has responded well to the change in reserves, Japan's PBR has remained within a range of 1.05 to 1.38 over the last decade and is unchanged compared to 2010. In prior post-bubble 'lost' decades, the average PBR was 1.8 times. In other markets, the rise of intangible assets has called the use of Book/Price as a metric and the S&amp;P 500 PBR is now almost three times that of the Japan aggregate having bottomed at 1.78 in March 2009.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/694/original/File%202020-09-14%2010%2007%2037.jpeg?1600045681" class="editor-image img-responsive" data-smartkarma-image-id="158694"></figure><div class="content-caption">Source: multpl.com</div><p><strong>BOOK VALUE PER SHARE </strong>- In this Insight, we shall look at Japan's larger-cap companies (current market value &gt;¥100 billion) through the 'lens' of book value per share. Our focus will be less on the 'winners' and 'losers' than on those companies that have seen the least change in 'BVPS' over the last seven years. Our share count excludes treasury shares which is to the benefit of companies such as <a href="https://www.smartkarma.com/entities/nippon-telegraph-telephone-corporation" target="_blank" data-smartkarma-citation="entities:623:1" rel="noopener">NTT (9432 JP)</a> which has seen a 20% reduction in Net Shares Outstanding, but only a 9% increase in Shareholders' Equity. A BVPS growth metric does, however, flatter serial issuers of equity with declining share prices, such as <a href="https://www.smartkarma.com/entities/sosei-group-corp" target="_blank" data-smartkarma-citation="entities:770:1" rel="noopener">Sosei (4565 JP)</a>.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/696/original/2020-09-14_10-26-48.png?1600046818" class="editor-image img-responsive" data-smartkarma-image-id="158696"></figure><p><strong>WINNERS</strong> - As many may ask and for the record, our 'winning' thirty companies contains many of Japan's best-performing businesses and 'priciest 'stocks, such as <a href="https://www.smartkarma.com/entities/monotaro-co-ltd" target="_blank" data-smartkarma-citation="entities:15441:1" rel="noopener">Monotaro (3064 JP)</a>, <a href="https://www.smartkarma.com/entities/m3-inc" target="_blank" data-smartkarma-citation="entities:13316:1" rel="noopener">M3 (2413 JP)</a>, <a href="https://www.smartkarma.com/entities/gmo-payment-gateway-inc" target="_blank" data-smartkarma-citation="entities:1492:1" rel="noopener">GMO Payment Gateway (3769 JP)</a>, and <a href="https://www.smartkarma.com/entities/kobe-bussan-co-ltd" target="_blank" data-smartkarma-citation="entities:4701:1" rel="noopener">Kobe Bussan (3038 JP)</a>. Some of the more surprising entries are <a href="https://www.smartkarma.com/entities/mixi-inc" target="_blank" data-smartkarma-citation="entities:602:1" rel="noopener">mixi (2121 JP)</a> and <a href="https://www.smartkarma.com/entities/tokyo-electric-power-co-inc" target="_blank" data-smartkarma-citation="entities:15457:1" rel="noopener">Tokyo Electric Power (9501 JP)</a>.  As an equally-weighted portfolio, this group has outperformed by 30% over one year and by 11% over the last three months.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/697/original/2020-09-14_10-33-13.png?1600047204" class="editor-image img-responsive" data-smartkarma-image-id="158697"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/698/original/2020-09-14_10-33-41.png?1600047231" class="editor-image img-responsive" data-smartkarma-image-id="158698"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/701/original/2020-09-14_10-47-56.png?1600048087" class="editor-image img-responsive" data-smartkarma-image-id="158701"></figure><p><strong>LOSERS</strong> - Our list of losers, who have collectively underperformed by 9% over one year, have many of Japan's weaker business models (shipping, oil &amp; gas, paper, copiers, gaming machines. The list also features some of the less-astute management 'teams' (<a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba (6502 JP)</a>, <a href="https://www.smartkarma.com/entities/nissan-motor-co-ltd" target="_blank" data-smartkarma-citation="entities:72:1" rel="noopener">Nissan (7201 JP)</a>, <a href="https://www.smartkarma.com/entities/kirin-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:16977:1" rel="noopener">Kirin (2503 JP)</a>, <a href="https://www.smartkarma.com/entities/lixil-group-corp" target="_blank" data-smartkarma-citation="entities:454:1" rel="noopener">Lixil (5938 JP)</a>, and <a href="https://www.smartkarma.com/entities/aeon-co-ltd" target="_blank" data-smartkarma-citation="entities:3:1" rel="noopener">Aeon (8267 JP)</a>).  Also among the latter are two medical-related business - the now remained <a href="https://www.smartkarma.com/entities/h-u-group-holdings-inc" target="_blank" data-smartkarma-citation="entities:16580:1" rel="noopener">H.U. Group (4544 JP)</a> (formerly Miraca) and recent Bain PE target <a href="https://www.smartkarma.com/entities/nichii-gakkan-co" target="_blank" data-smartkarma-citation="entities:6790:1" rel="noopener">Nichii Gakkan (9792 JP)</a>.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/706/original/2020-09-14_10-57-45.png?1600048692" class="editor-image img-responsive" data-smartkarma-image-id="158706"></figure><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/158/707/original/2020-09-14_10-59-22.png?1600048774" class="editor-image img-responsive" data-smartkarma-image-id="158707"></figure><p>In the <strong>DETAIL</strong> section below, we all review the large companies that have seen the least change in BVPS over the last seven years and those with the lowest BVPS volatility over the same period. Our lists contain quite a few surprises.</p>

Source for all charts &amp; tables except as stated: Japan AnalyticsEQUITY-DRIVEN - Japan's aggregate Shareholders' Equity has appreciated by 45% since 2014 - an annual rate of 5.5% and has been one of the key achievements of the 'Abe era'. For the five years before 2012, Shareholders Equity was unchanged, buffeted by the 2008/9 financial crisis and the 3/11.  Although the equity market has responded well to the change in reserves, Japan's PBR has remained within a range of 1.05 to 1.38 over the last decade and is unchanged compared to 2010. In prior post-bubble 'lost' decades, the average PBR was 1.8 times. In other markets, the rise of intangible assets has called the use of Book/Price as a metric and the S&amp;P 500 PBR is now almost three times that of the Japan aggregate having bottomed at 1.78 in March 2009.Source: multpl.comBOOK VALUE PER SHARE - In this Insight, we shall look at Japan's larger-cap companies (current market value &gt;¥100 billion) through the 'lens' of book value per share. Our focus will be less on the 'winners' and 'losers' than on those companies that have seen the least change in 'BVPS' over the last seven years. Our share count excludes treasury shares which is to the benefit of companies such as NTT (9432 JP) which has seen a 20% reduction in Net Shares Outstanding, but only a 9% increase in Shareholders' Equity. A BVPS growth metric does, however, flatter serial issuers of equity with declining share prices, such as Sosei (4565 JP).WINNERS - As many may ask and for the record, our 'winning' thirty companies contains many of Japan's best-performing businesses and 'priciest 'stocks, such as Monotaro (3064 JP), M3 (2413 JP), GMO Payment Gateway (3769 JP), and Kobe Bussan (3038 JP). Some of the more surprising entries are mixi (2121 JP) and Tokyo Electric Power (9501 JP).  As an equally-weighted portfolio, this group has outperformed by 30% over one year and by 11% over the last three months.LOSERS - Our list of losers, who have collectively underperformed by 9% over one year, have many of Japan's weaker business models (shipping, oil &amp; gas, paper, copiers, gaming machines. The list also features some of the less-astute management 'teams' (Toshiba (6502 JP), Nissan (7201 JP), Kirin (2503 JP), Lixil (5938 JP), and Aeon (8267 JP)).  Also among the latter are two medical-related business - the now remained H.U. Group (4544 JP) (formerly Miraca) and recent Bain PE target Nichii Gakkan (9792 JP).In the DETAIL section below, we all review the large companies that have seen the least change in BVPS over the last seven years and those with the lowest BVPS volatility over the same period. Our lists contain quite a few surprises.

🇯🇵 Japan • Every Shareholder Left Behind - The Book Value Per Share Metric

<p><strong>FROM OPERATING TO FINANCING CASH FLOWS</strong> -  Having examined Operating Cash Flow in our previous <a href="https://www.smartkarma.com/insights/japan-stress-tests-part-2-operating-cash-flow-accruals" target="_blank" data-smartkarma-citation="insights:40321" rel="noopener">Insight</a>, we shall look into the 'stressors' between Operating Cash Flow and Financing Cash Flow. In our reformulated Cash Flow Statements, cash flows relating to operating activities are divided into Operating Cash Flows and Investing Cash Flows, which comprise Fixed Asset and Inventory Cash Flows.  Free Cash Flow is the sum of Operating Cash Flow, Fixed Asset Cash Flow and Inventory Cash Flow. Inventories are not included in Operating Cash Flow as they are considered discretionary, are often related to Fixed asset Cash Flows, and can be highly seasonal.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/141/225/original/2020-06-21_08-34-07.png?1592698079" class="editor-image img-responsive" data-smartkarma-image-id="141225"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>JAPAN WAS FCF POSITIVE IN Q4..</strong> - Despite the decline in Operating Cash Flow in the last quarter (the final quarter of the Fiscal Year for most Japanese companies), Investing Cash Flow was more positive than in any quarter since FY2016-Q4, which also coincided with the last business cycle low. As a result, the aggregate Free Cash Flow for the 3,639 listed non-financial companies (excluding<a href="https://www.smartkarma.com/entities/rakuten-inc" target="_blank" data-smartkarma-citation="entities:31:1" rel="noopener"> Rakuten (4755 JP)</a>, <a href="https://www.smartkarma.com/entities/z-holdings-corp" target="_blank" data-smartkarma-citation="entities:19603:1" rel="noopener">Z Holdings (4689 JP)</a>, <a href="https://www.smartkarma.com/entities/japan-post-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:359:1" rel="noopener">Japan Post (6178 JP)</a>, <a href="https://www.smartkarma.com/entities/softbank-group-corp" target="_blank" data-smartkarma-citation="entities:315:1" rel="noopener">Softbank Group (9984 JP)</a> and <a href="https://www.smartkarma.com/entities/sony-corp" target="_blank" data-smartkarma-citation="entities:563:1" rel="noopener">Sony (6758 JP)</a>) was an impressive ¥8.4 trillion or an annualised yield of 6.4%.</p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/141/223/original/2020-06-21_08-51-12.png?1592697088" class="editor-image img-responsive" data-smartkarma-image-id="141223"></figure><div class="content-caption">Source: Japan Analytics</div><p><strong>..AS CAPEX WAS PUT ON HOLD</strong> - Seasonally Japanese companies capital expenditures are higher in the second half of the fiscal year- in FY2019, ¥21trillion was added to Operating Assets. In contrast, FY2020 saw a 79% decline in capex to ¥4.4 trillion, all of which was spent in the third quarter. This decline is the most substantial second-half quarter-on-quarter contraction in fixed asset outflows since 2009.   </p><p>In the <strong>DETAIL</strong> below, we shall highlight those 'outlier' large-cap companies which are either end of the capex, inventory and Free Cash Flow tables, and focus on those with the greatest intimations of business 'stress'. We have excluded the Real Estate Sector from this analysis due to the inherent volatility of fixed assets and inventory cash flows fo these companies.</p>

FROM OPERATING TO FINANCING CASH FLOWS -  Having examined Operating Cash Flow in our previous Insight, we shall look into the 'stressors' between Operating Cash Flow and Financing Cash Flow. In our reformulated Cash Flow Statements, cash flows relating to operating activities are divided into Operating Cash Flows and Investing Cash Flows, which comprise Fixed Asset and Inventory Cash Flows.  Free Cash Flow is the sum of Operating Cash Flow, Fixed Asset Cash Flow and Inventory Cash Flow. Inventories are not included in Operating Cash Flow as they are considered discretionary, are often related to Fixed asset Cash Flows, and can be highly seasonal.Source: Japan AnalyticsJAPAN WAS FCF POSITIVE IN Q4.. - Despite the decline in Operating Cash Flow in the last quarter (the final quarter of the Fiscal Year for most Japanese companies), Investing Cash Flow was more positive than in any quarter since FY2016-Q4, which also coincided with the last business cycle low. As a result, the aggregate Free Cash Flow for the 3,639 listed non-financial companies (excluding Rakuten (4755 JP), Z Holdings (4689 JP), Japan Post (6178 JP), Softbank Group (9984 JP) and Sony (6758 JP)) was an impressive ¥8.4 trillion or an annualised yield of 6.4%.Source: Japan Analytics..AS CAPEX WAS PUT ON HOLD - Seasonally Japanese companies capital expenditures are higher in the second half of the fiscal year- in FY2019, ¥21trillion was added to Operating Assets. In contrast, FY2020 saw a 79% decline in capex to ¥4.4 trillion, all of which was spent in the third quarter. This decline is the most substantial second-half quarter-on-quarter contraction in fixed asset outflows since 2009.   In the DETAIL below, we shall highlight those 'outlier' large-cap companies which are either end of the capex, inventory and Free Cash Flow tables, and focus on those with the greatest intimations of business 'stress'. We have excluded the Real Estate Sector from this analysis due to the inherent volatility of fixed assets and inventory cash flows fo these companies.

🇯🇵 JAPAN - Stress Tests Part 3 - Inventory, Fixed Asset & Free Cash Flows

Japan

Tokyo Electric Power Company, Incorporated generates, transmits, and distributes electricity.  The Company uses hydroelectric, thermal, and nuclear power sources.  Tokyo Electric Power distributes electricity in the Kanto area, which includes the Tokyo metro area, Kanagawa, Chiba, and Saitama prefectures.

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Tokyo Electric Power Co (9501 JP)

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52-week Range

Market Cap (USDm)

P/E

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Imperial Hotel (9708) - Redevelopment Might Hide an LBO Story

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EQUITY-DRIVEN - Japans

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🇯🇵 JAPAN - Stress Tests Part 3 - Inventory, Fixed Asset & Free Cash Flows

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🇯🇵 JAPAN • Results & Revisions Update 02/10 - Rinnai, INPEX, Toyota, Nippon Paint