Japan

In today’s briefing:

Renesas Electronics Placement – Well Flagged US$1.8bn Deal, Accelerated but Index Flows Should Help
Renesas Electronics (6723 JP): INCJ Clean Up; Index Buying Smaller than Expected
Trend Micro BIG Bonanza But Shareholder AND Balance Sheet Structure Matter. N225 Divs Get a Fillip
P.S. Mitsubishi Construction (1871 JP): Taisei’s Partial Tender Offer
Cybernet Systems (4312 JP): Fuji Soft’s Tender Offer at JPY1,095
Prime Market Is Still the Market with the Most Listed Companies Even After 171 Companies Are Removed

Renesas Electronics Placement – Well Flagged US$1.8bn Deal, Accelerated but Index Flows Should Help

By Ethan Aw

INCJ aims to raise around US$1.8bn via a secondary sell-down in Renesas Electronics (6723 JP). This will be a clean-up trade as INCJ has been paring down its stake.
The deal is a slightly large one to digest at 12 days of three month ADV and around 6% of current mcap.
In this note, we will talk about the placement and run the deal through our ECM framework.

Renesas Electronics (6723 JP): INCJ Clean Up; Index Buying Smaller than Expected

By Brian Freitas

INCJ is selling the last of its stake in Renesas Electronics (6723 JP). This will remove the overhang but could lead to selling in the short-term.
Renesas Electronics (6723 JP) has outperformed its peers over the last couple of years but valuations are in-line with the peer group (or slightly cheaper).
The float increase in global indices will coincide with the offering, but the TSE Tokyo Price Index TOPIX (TPX INDEX) float increase will take quite a while.-

Trend Micro BIG Bonanza But Shareholder AND Balance Sheet Structure Matter. N225 Divs Get a Fillip

Trend Micro Inc (4704 JP) has been under pressure to improve capital allocation after Value Act bought in 2022. In February 2023, Trend announced a weak sauce capital return policy.
They promised a 100% payout ratio with 70% div payout ratio. But with huge piles of cash and securities, it wasn’t going to be enough, and shareholder structure ALWAYS matters.
Here it meant Trend Micro was vulnerable to further attack. Today, Trend announced a HUGE capital return with buyback, and a special div and this will excite Nikkei 225 arbs.

P.S. Mitsubishi Construction (1871 JP): Taisei’s Partial Tender Offer

By Arun George

Ps Mitsubishi Construction (1871 JP)/PSMIC announced a partial tender offer for Taisei Corp (1801 JP) at JPY1,010 per share, a 22.4% premium to the undisturbed price.
The partial offer is for a minimum of 20.4 million shares (42.94% ownership ratio) and a maximum of 23.8 million shares (50.20% ownership ratio).
Irrevocables represent a 42.94% ownership ratio, satisfying the minimum acceptance condition. The offer is attractive and represents a ten-year high. The tender offer runs from 10 November to 11 December.

Cybernet Systems (4312 JP): Fuji Soft’s Tender Offer at JPY1,095

By Arun George

Cybernet Systems Co (4312 JP) has recommended Fuji Soft Inc (9749 JP)’s tender offer of JPY1,095 per share, a 31.8% premium to the undisturbed price (8 November).
The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the tender offer is set at a 12.28% ownership ratio.
The offer price is attractive and marginally below the ten-year share price high. The minimum acceptance condition (lower limit) requires a 26.9% minority acceptance rate, which is doable.

Prime Market Is Still the Market with the Most Listed Companies Even After 171 Companies Are Removed

The baseless confidence of the 177 companies that finally moved to Standard Market that their market capitalization would increase in18 months was nothing more than a waste of time.
It is fine for a company to aim to be listed on the highest prime market, but high shareholder returns and quality management must come first.
If the listing criteria for prime market was JPY100 billion market capitalization, the gap with investors who initially expected prime market before the market restructuring would have been much smaller.

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Nov 09

Daily Brief Japan: CMIC Holdings, Recruit Holdings, Skylark Co Ltd, Simplex Holdings and more

In today’s briefing:

CMIC (2309 JP) – Huge Business Model Plan Appears to Hide Assets, Then an MBO. Ugh…
Recruit 2Q: Earnings Further Slows Down; 2H To Be Even More Challenging
Skylark Holdings: Anticipating Another Significant Guidance Upgrade
Deep-Dive Review – Simplex Holdings (4373 JP)

CMIC (2309 JP) – Huge Business Model Plan Appears to Hide Assets, Then an MBO. Ugh…

By Shifara Samsudeen, ACMA, CGMA

CMIC Holdings (2309 JP) decided to “change its business model” this past spring, transferring control of a consolidated JV and other subs to DNP.
The result changed the accounting, and the business model, capitalising future cashflow and net income in a “hidden” asset which may or may not be in the Financial Advisor’s valuation.
My read is this is being done too cheaply, and the price should be 30-60% higher. But, it would be tough to block this.

Recruit 2Q: Earnings Further Slows Down; 2H To Be Even More Challenging

Recruit Holdings (6098 JP) reported 2QFY03/2024 results today. Revenues decreased YoY due to decline in HR Tech revenues, while operating profit for the quarter increased YoY. OP missed consensus marginally.
As we expected, the new pricing model has negatively impacted HR Tech revenues, and the segment’s earnings are forecast to decline further going into the second half.
There is further downside to earnings and the company’s share price has moved up during the last few days, and we are set to nicely gain on the Short side.

Skylark Holdings: Anticipating Another Significant Guidance Upgrade

By Oshadhi Kumarasiri

If Skylark Co Ltd (3197 JP)‘s pricing and footfall growth trend persists, it’s likely the company and consensus will revise annual revenue targets upward.
The OP is also expected to exceed Q3 estimates with an OP of ¥7.9bn, prompting a necessary upgrade of annual guidance by ¥5.0-6.0bn.
Yet, we’ll approach Skylark’s earnings trade cautiously, considering its current valuation.

Deep-Dive Review – Simplex Holdings (4373 JP)

By Astris Advisory Japan

Presenting a clear growth roadmap – following disclosure of the new medium-term business plan (‘MTBP2027’ covering FY3/2025 to FY3/2027) and long-term growth strategy (‘Vision1000’ depicting timing around 2030), we have revised our earnings estimates for FY3/2025 and FY3/2026.
These reflect 1) acquisitive growth impact towards FY3/2027 as capital is allocated to the fast-growing Strategy/DX Consulting business, and 2) stronger margin growth driven by productivity enhancements and improving sales mix.
We believe diversifying into new market sectors will open new growth opportunities and develop a more resilient business.

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Nov 08

Daily Brief Japan: Kokusai Electric , Sankyo Co Ltd, Suruga Bank Ltd, Nintendo, CMIC Holdings, TSE Tokyo Price Index TOPIX, Shofu Inc, Ono Pharmaceutical and more

In today’s briefing:

TOPIX Inclusions: Who Is Ready (Nov 2023)
Sankyo (6417) – Second Go-Round for a BIG Buyback
Japan H1 Bank Earnings: Last Minute Update; Suruga Bank Reacts Well
Nintendo (7974) | Stock Performance Ahead ‘Switch 2’ Speculation
CMIC Holdings (2309 JP): MBO Tender Offer at JPY2,650
The Problem Is that Companies that Don’t Want to Do Discloser in English Are Listed on Prime Market
Shofu (7979 JP) – Competitive Advantage Driving Predictability in Earnings Growth
Ono Pharmaceutical (4528 JP): Record H1 Earnings; Forxiga Is Flying High; FY24 Guidance Updated

TOPIX Inclusions: Who Is Ready (Nov 2023)

By Janaghan Jeyakumar, CFA

Quiddity’s “Who is Ready” series of insights aims to objectively identify names listed on the Tokyo Stock Exchange that are potential additions to the TOPIX Index in future.
Our main pre-event candidate CELSYS (3663 JP) has outperformed TOPIX by ~12.6% since 1 Sep (when it was highlighted) and 6 Nov 2023.
There are three TOPIX Inclusion events confirmed for the end of November and two other interesting pre-event names we are closely monitoring.

Sankyo (6417) – Second Go-Round for a BIG Buyback

Back in late September, Sankyo Co Ltd (6417 JP) announced a 10mm share buyback along with a new dividend policy. Only 4.22mm shares showed up to sell.
The largest holder – Exec Chair Busujima-san – sold 2.22mm shares under his own name and his company’s name. Hikari Tsushin, which had been selling in the market, didn’t participate.
Now Sankyo has launched another 10mm share ToSTNeT-3 buyback tomorrow (8 Nov) AM at ¥6,099/share. They may not complete. But they may continue buying later. They have oodles of cash.

Japan H1 Bank Earnings: Last Minute Update; Suruga Bank Reacts Well

I wrote Japan H1 Bank Earnings: Interest/Fees Up, Expenses/Credit Costs Down – Opportunity Abounds, Still last week mentioning the trends in guidance revisions.
Since then, five have reported H1. +20%, +53%, +23% vs guidance; +25.6%, and +28.2% vs Last Year. Eight more have added new guidance, weighted average H1 up 48%.
Four more report tomorrow, eight on Thurs, 43 on Friday. The Top 5 are all next Mon/Tues. Watch for comments about portfolio restructuring efforts in H2 as market yields rise.

Nintendo (7974) | Stock Performance Ahead ‘Switch 2’ Speculation

By Mark Chadwick

Nintendo’s Q2 results show solid performance but still fall short of expectations, with a conservative full-year profit outlook
The impending release of “Switch 2” in 2H24 raises questions about the company’s ability to replicate the original Switch’s success
We see the current 11x EV/EBIT as fair for the stock and do not anticipate a valuation breakout until the market can assess the credentials of “Switch 2”

CMIC Holdings (2309 JP): MBO Tender Offer at JPY2,650

By Arun George

CMIC Holdings (2309 JP) has recommended an MBO tender offer of JPY2,650 per share, a 55.9% premium to the undisturbed price (7 November).
The transaction is a two-step acquisition through a cash tender offer and subsequent squeeze-out. The lower limit of the tender offer is set at a 41.29% ownership ratio.
Irrevocables to accept represent a 23.29% ownership ratio. While the offer is light vs. peer multiples, the minimum acceptance condition requires a 35.1% minority acceptance rate, which is doable.

The Problem Is that Companies that Don’t Want to Do Discloser in English Are Listed on Prime Market

Companies disclosing in English increased to 97.2% in 2023 prime market. However, only 15% of overseas investors responded “satisfied,” indicating a continuing mismatch between disclosure content and investor needs.
TSE will prioritize the documents according to whether disclosure requires immediacy, and divide companies into mandatory companies and effort companies according to the size and foreign ownership of a company.
However, disclosure in English of lower priority documents would be more difficult. Separating companies would allow the prime market to include companies that don’t need to interact with global investors.

Shofu (7979 JP) – Competitive Advantage Driving Predictability in Earnings Growth

By Astris Advisory Japan

Q1-2 FY3/2024 results were in line with upwardly-revised company guidance, with gross margins reaching 60.4% and a record-high quarterly level of 61.0% for Q2 FY3/2024.
This was driven by overseas growth for Shofu’s competitive Chemical Products (CAD/CAM resin materials and restorative filling materials) and a forex tailwind, with overseas sales making up 57.6% of total sales.
We have raised our earnings estimates for FY3/2024 and beyond to reflect Shofu continuing to gain market share overseas, and the resultant improvement in the sales mix

Ono Pharmaceutical (4528 JP): Record H1 Earnings; Forxiga Is Flying High; FY24 Guidance Updated

Ono Pharmaceutical (4528 JP) reported double-digit growth in revenue, operating profit, and net profit in H1FY24. Opdivo recorded revenue of ¥75B (+7% YoY). Forxiga revenue jumped 36% YoY to ¥36B.
Encouraged by strong performance of Forxiga and receipt of lump-sum income associated with the patent litigation settlement, Ono has raised FY24 guidance by mid-to-high single-digit percentage across all the parameters.
The company aims to overcome Opdivo patent cliff and accelerate growth by launching multiple products in the U.S. and Europe with large addressable markets.

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Nov 07

Daily Brief Japan: Mitsubishi Heavy Industries, TSE Tokyo Price Index TOPIX, Mizuho Financial Group and more

In today’s briefing:

MHI (7011) | Rockets and Renewables
ROE Isn’t Rising Because Managers Don’t Think of the Value of the Company and Meaning of the Listing
Mizuho – Expect Profit Guidance Surge | JGBs Up, JGBs Unrealized Losses Down | Credit Metrics Better

MHI (7011) | Rockets and Renewables

By Mark Chadwick

MHI reports impressive YoY growth in order intake, revenues, and profits across Energy Systems and Defense Equipment segments in Q2 2023.
Despite a 62% YTD stock price increase, strong order backlog and underlying drivers suggest resilience in a challenging economic climate.
The company benefits from global trends in decarbonization and increased national security spending, positioning itself as a leader in gas turbines and defense technology.

ROE Isn’t Rising Because Managers Don’t Think of the Value of the Company and Meaning of the Listing

Even after the “TSE’s request,” the average P/B of listed companies has not increased. In addition, ROE, which can be considered a driver for corporate value expansion, has remained flat.
Japanese managers tend to be caught up in formalistic thinking about whether or not a company is listed, and whether or not it’s listed on the highest market or not.
Instead of being caught up in formalistic thinking, I would like managers to seriously rethink the value of the company and what it means to be listed.

Mizuho – Expect Profit Guidance Surge | JGBs Up, JGBs Unrealized Losses Down | Credit Metrics Better

By Daniel Tabbush

Mizuho Financial Group (8411 JP) can see higher profit guidance change than many in Japan, the region, given its first quarter was 40% of full-year guidance
Riding JGB yields will support this, with less loans to total financial assets, and the bank has even seen its unrealized losses on JGBs decline. Good ALM.
Credit metrics are better. Its credit costs are in reversal. This can continue or at least remain low. This is supported by granular, macro data.

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Nov 06

Daily Brief Japan: Descente Ltd, Wacom Co Ltd, Saizeriya and more

In today’s briefing:

Descente (8114) : Itochu Still Buying and ANTA Gives You Earnings Hints
Wacom (6727 JP) – Large, Short-Dated, On-Market Buyback Against Dense Register
Saizeriya (7581 JP): Best Pick For Asia/China Restaurant Space

Descente (8114) : Itochu Still Buying and ANTA Gives You Earnings Hints

Descente Ltd (8114 JP) saw Itochu report it had continued its streak of consecutive days of buying, extending it to 115. Now they own 44.1% of voting rights.
ANTA gave hints to the progress of Descente China in the Interim Results, and Q3 Operational Update. Descente analysts are 20% ahead of guidance, but they’re probably low still.
Descente reports Q2 tomorrow. I expect the numbers and presentation to surprise at the Net Profit level. I expect a forecast revision.

Wacom (6727 JP) – Large, Short-Dated, On-Market Buyback Against Dense Register

Wacom splits its pen-tablet business into “Branded Business” and “Technology Solutions” which is not dissimilar to simply splitting based on customer type. TS is doing well. BB is not.
But BB is doing better than it was, which means a rebound in profit this year. After Q2 there is new guidance, probably soft. And there is a BIG buyback.
The buyback is large enough to take notice, even though practically it will be smaller than the headline. And a read of the MTMP “Wacom Chapter 3” is highly recommended.

Saizeriya (7581 JP): Best Pick For Asia/China Restaurant Space

By Steve Zhou, CFA

I continue to believe that Saizeriya is the best pick for gaining exposure to Asia/China restaurant space.
Saizeriya has a very clear business strategy and focus: price. The founder Yasuhiko Shogaki made it clear that price always comes first, and everything else second.
Looking ahead, the runway for growth in China is huge. The company is currently only in 3 cities for a total of 373 stores as of end-FY23 year ending August.

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Nov 05

Daily Brief Japan: Daito Trust Construct, Nikkei 225, Astellas Pharma, TSE Tokyo Price Index TOPIX and more

In today’s briefing:

Daito Trust Construction (1878) – Big Buyback, Dense Register, 120% Payout This Year
EQD | Nikkei 225 (NKY)’s November Rally: How Far Can It GO?
Astellas Pharma (4503 JP): Underwhelming H1 Result; Massive Cut in FY24 Profit Guidance
Valuations Will Rise when the Management Changes To “Maximizing Shareholder Interest”

Daito Trust Construction (1878) – Big Buyback, Dense Register, 120% Payout This Year

Daito Trust last week announced H1 earnings, its 50% dividend payout ratio, and a ¥50bn stock buyback which results in a shareholder payout ratio of ~120% over the next year.
This should help to keep ROE high, and as it is a clear distribution of surplus, it should help keep the multiple up.
It is worth looking at shareholder structure to see how this buyback will be taken.

EQD | Nikkei 225 (NKY)’s November Rally: How Far Can It GO?

By Nico Rosti

The Nikkei closed the month of October down, 4 months down in a row (CC=-4), very OVERSOLD MONTHLY. The 30600 support indicated in our last MONTHLY insight did hold somehow.
We think the Nikkei could continue to rally in November, but this explosive, fast rally, at one point will have to retrace back, before it can continue up.
The index could rally for 2 months, into December. The target prices for the end of the rally are near 34000.

Astellas Pharma (4503 JP): Underwhelming H1 Result; Massive Cut in FY24 Profit Guidance

Astellas Pharma (4503 JP) reported just 0.6% YoY revenue growth to ¥767B in H1FY24, while operating profit plunged 57% YoY and net profit decreased 67% YoY.
Generic competition in Lexiscan impacted topline. Increase in SG&A expenses related to new drug launch and higher amortization of intangible assets, pulled down the operating as well as net profit.
Astellas has downwardly revised FY24 forecasts for profit items by more than 50% after taking into consideration the increases in higher expenses.

Valuations Will Rise when the Management Changes To “Maximizing Shareholder Interest”

The average P/B has remained flat since March end, when TSE requested improvements for companies with P/Bs below 1x, and TOPIX has risen in line with the rise in BPS.
Given the lack of progress in improving ROE, companies have many issues to resolve in improving returns through the appropriate allocation of cash and capital.
Since it’s no longer possible to show early results simply by leaving it to managers, the use of TOB/MBO will be a shortcut to raising shareholder returns and corporate value.

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Nov 04

Daily Brief Japan: Softbank Group, TSE Tokyo Price Index TOPIX, Otsuka Holdings and more

In today’s briefing:

SoftBank Group (9984 JP): Results Preview, Key Topics
Japan Bullishly Inflecting; Constructive Outlook Intact; Global Pullback Likely Over
Otsuka Holdings (4578 JP): Global Products Continue to Shine; Second Consequent 2023 Guidance Raise

SoftBank Group (9984 JP): Results Preview, Key Topics

By Victor Galliano

WeWork appears to be approaching bankruptcy; we expect SoftBank’s exposure to be at least USD1.4bn including credit lines
Arm Holdings post-IPO performance has been lacklustre, but we continue to believe that it remains dangerously over-valued against peers – and Arm provides 30% of the group’s equity value
We believe that JPY depreciation has supported SoftBank Group’s share price (given the high share of USD-denominated portfolio assets); in addition, we still see risks to current private company valuations

Japan Bullishly Inflecting; Constructive Outlook Intact; Global Pullback Likely Over

By Joe Jasper

The MSCI ACWI index ACWI-US briefly fell below major support at $90.50-$91.50, though we do not consider it a “decisive” breakdown and we now see a false breakdown (bullish).
On MSCI ACWI (local currency), a false breakdown appears to already be in place, which is bullish as long as the index does not break to a new low.
MSCI EM (EEM-US) continues to hold above $36.50-$37 support, while MSCI ACWI ex-US (ACWX-US) and EAFE (EFA-US) remain above supports at $45 and $65-$66, respectively. Pullback is likely over.

Otsuka Holdings (4578 JP): Global Products Continue to Shine; Second Consequent 2023 Guidance Raise

During 9M2023, Otsuka Holdings (4578 JP) reported revenue growth of 17% YoY to ¥1,479B, driven by 21% YoY revenue growth in pharmaceutical segment due to 16% growth in global products.
Despite the recording of impairment losses, operating profit increased 77% YoY to ¥203B, leading to a 460 bps expansion of margin to 13.7%. Net profit zoomed 46% YoY to ¥162B.
The company has raised 2023 revenue guidance, second time this year. Otsuka now expects 2023 revenue to grow 14% YoY to ¥1,985B, 4% ahead of prior guidance of ¥1,905B.

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Nov 03

Daily Brief Japan: Kyocera Corp, Keisei Electric Railway Co, CyberAgent Inc, TSE Tokyo Price Index TOPIX, Japan Hotel Reit Investment and more

In today’s briefing:

Kyocera (6971) And Their $10bn KDDI Stake – Did They Get CorpGov Religion?
Keisei Electric: Results Unimpressive, Yet Investor Activism Appeal Remains
CyberAgent: Gaming Shows Some Recovery but New Releases Yet to Shift Momentum for Games
What Is the Path for Resolving the Challenges of Life Insurance Companies’ Policy Shareholdings?
Japan REITs: Long Japan Hotel REIT and Short Nippon Building Fund on Industry Fundamentals

Kyocera (6971) And Their $10bn KDDI Stake – Did They Get CorpGov Religion?

By Shifara Samsudeen, ACMA, CGMA

Yesterday, Kyocera Corp (6971 JP) announced Q2 results and lowered its full-year forecast. Then the CEO said it was “reconsidering” what to do with KDDI shares (after an AGM disaster).
The company had already planned to borrow ¥500bn against the KDDI stake to return capital to shareholders. That was in the price 5+ months ago.
The new hope is that Kyocera just got Corporate Governance Religion. I have my doubts, and even if it did, you have to look carefully at their ambitious plans.

Keisei Electric: Results Unimpressive, Yet Investor Activism Appeal Remains

By Oshadhi Kumarasiri

Keisei Electric Railway Co (9009 JP)‘s FQ2 earnings, released on October-31st, surpassed revenue and OP expectations, yet the company revised down its revenue and OP guidance by ¥8.8bn and ¥200m.
Despite this, the share price has surged over 10% in recent days, likely influenced by activist investor Palliser Capital’s interest and a significant 30% increase in annual dividend guidance.
However, during earnings, the company remained silent about the activist investor’s proposal to reduce its Oriental Land (4661 JP) ownership below 15%.

CyberAgent: Gaming Shows Some Recovery but New Releases Yet to Shift Momentum for Games

CA reported 4Q and full-year FY09/2023 results today. 4Q revenue increased 5% YoY while OP dropped more than 50% during the quarter. Revenues beat consensus while OP fell behind.
Games revenues further decreased YoY during the quarter (improved QoQ) while it managed to report an OP which was possible due to UMA MUSUME’s game anniversary.
Though CA released a new game in September and few lined-up for release, until the company releases a hit title like UMA MUSUME, we expect the recovery to be slow.

What Is the Path for Resolving the Challenges of Life Insurance Companies’ Policy Shareholdings?

It should be noted that some companies that state that they do not possess takeover defenses also indicate that they will take “appropriate measures.”
Addition of ROE and % of independent directors to the approval/disapproval of takeover defense agenda is likely an afterthought to add these conditions to favor the introduction of takeover defense.
It’ll take several years before life insurance companies show signs of change in voting. It’ll be interesting to see how they come to terms with their corporate clients and stewardship.

Japan REITs: Long Japan Hotel REIT and Short Nippon Building Fund on Industry Fundamentals

By Jacob Cheng

In this insight, among the J-REIT universe, we explore the pair trade idea of LONG Japan Hotel REIT and SHORT Nippon Building Fund
Among the real estate subsectors, we expect hotels continue to see superior performance on the back of tourism recovery, while office market will continue to be weak
Both JHR and NBF are large caps with good trading liquidity. In terms of valuation, we see more upside in JHR (20%) than NBF (0%)

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Nov 02

Daily Brief Japan: Hokuhoku Financial Group, Resona Holdings, Daiichi Sankyo and more

In today’s briefing:

Japan H1 Bank Earnings: Interest/Fees Up, Expenses/Credit Costs Down – Opportunity Abounds, Still
Japanese Banks – Nearing the Yield Curve Control End-Game
Daiichi Sankyo (4568 JP): Landmark ADC Deal Pushes FY24 Revenue Guidance Higher

Japan H1 Bank Earnings: Interest/Fees Up, Expenses/Credit Costs Down – Opportunity Abounds, Still

40% of Banks outside the Top 7 (none of which offered H1 guidance) in the TOPIX Banks Index have now changed H1 guidance or reported H1. 2 reported both up.
92% of the others have revised up H1 net income guidance a weighted average of 47%. Net Interest Income, Corporate fees/comms are up, expenses and credit costs are down.
Big tables with data, reasons for guidance changes, and buyback history of each presented below.

Japanese Banks – Nearing the Yield Curve Control End-Game

By Victor Galliano

The latest BoJ adjustment to its yield curve control lifts the hard yield ceiling of 1% on 10 year JGBs, making it “a reference” and allowing yields to exceed it
10 year JGB yields are close to 1%, with Japanese bond yields steepening further which is positive for Japanese banks, especially those with a high share of floating-rate credit exposures
We stick with our positive views on Resona, Mizuho, SMFG and Hachijuni; we add Concordia to our buy list for its high share of floating rate credit exposure

Daiichi Sankyo (4568 JP): Landmark ADC Deal Pushes FY24 Revenue Guidance Higher

Daiichi Sankyo (4568 JP) reported strong H1FY24 results, with double-digit growth in revenue, core operating profit, and net profit, mainly driven by its global mainstay product Enhertu.
Daiichi Sankyo and Merck entered into a global development and commercialization agreement for three of Daiichi Sankyo’s drug candidates, for a total potential consideration of up to $22 billion.
Daiichi Sankyo has raised FY24 revenue, core operating profit, and net profit forecast by 7%, 11%, and 17%, respectively. FY24 revenue is expected to grow 21% YoY to ¥1,550 billion.

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Nov 01

Daily Brief Japan: Socionext, TOPIX-Banks Index, Fanuc Corp, Alfresa Holdings, TSE Tokyo Price Index TOPIX and more

In today’s briefing:

March 2024 Nikkei 225 Rebal – Socionext, Disco and a Consumer Goods Stock (Ryohin Keikaku?) To ADD
Ueda’s BOJ Looking Like Ueda’s Pre-BOJ Opinions, but Normalisation Is “A Work in Progress.”
Fanuc (6954) | Not Out of the Woods Yet
Alfresa Holdings (2784 JP): Better-Than-Expected H1FY24 Performance; FY24 Guidance Raised
Fewer TOPIX Remaining Companies Show the Difficulty of Producing Convincing Disclosures

March 2024 Nikkei 225 Rebal – Socionext, Disco and a Consumer Goods Stock (Ryohin Keikaku?) To ADD

In March 2024 Nikkei 225 Rebal – Look for Zozo, Ryohin Keikaku, and Maybe a Socionext Split I suggested Socionext (6526 JP) needed a stock split to get in.
Today after the close, Socionext reported H1, guided up full-year earnings (still too conservative), raised its div, and announced a 5:1 stock split for Jan1 2024.
DISCO Corp (6146 JP) is now likely to be a top 75, which leaves the question of which Consumer Goods stock would likely be added.

Ueda’s BOJ Looking Like Ueda’s Pre-BOJ Opinions, but Normalisation Is “A Work in Progress.”

In July the BOJ lifted the YCC range to allow flexibility at 0.5% and a red line at 1.0%. Today it moved the “reference” to 1.0% with no red line.
This allows 10yr yields to move higher, but the Board’s insistence on negative rates and YCC staying in place tells you steeper for longer makes shorting long JGBs tough.
The move today helps encourage the market mechanism to take control of dampening volatility, the same way it did when the BOJ stepped away from ETF buying in 2021.

Fanuc (6954) | Not Out of the Woods Yet

By Mark Chadwick

Q2 2023 results for FANUC Group showed a 3.7% decrease in consolidated net sales, a 24.5% drop in consolidated operating income, and mixed performance in its divisions.
Some positives: operating profit exceeding analyst expectations and an operating margin increase to 17.2%. However, declining robot orders, challenges in the US region, and high inventory remain concerns
We believe that the stock is currently trading around fair value (20x EV/EBIT). However, we still see risks to the downside given macro concerns

Alfresa Holdings (2784 JP): Better-Than-Expected H1FY24 Performance; FY24 Guidance Raised

Alfresa Holdings (2784 JP)‘s H1FY24 revenue, operating profit, and net profit are expected to exceed the previous expectations due to greater-than-expected growth in the ethical pharmaceuticals business.
Encouraged by the growth in the pharmaceutical market and better-than-expected H1FY24 performance, the company has raised FY24 revenue, operating profit, and net profit guidance by 4%, 30%, and 36%, respectively.
New FY24 guidance implies, H2FY24 revenue run-rate will be similar to H1F24, while H2FY24 operating profit will accelerate to ¥20.1 billion from ¥15.9 billion in H1FY24.

Fewer TOPIX Remaining Companies Show the Difficulty of Producing Convincing Disclosures