Japan

In today’s briefing:

What Is the Effective Way to Ensure That “TSE Request” Does Not End up Being a Formal Disclosure?
Toyota Motor Corporation: How Long Are Production Constraints & Other Challenges Going To Last? – Key Drivers

What Is the Effective Way to Ensure That “TSE Request” Does Not End up Being a Formal Disclosure?

The test will be how many companies will disclose details that include the measures investors expect and whether the stock price will react positively when the panel concludes this fall.
The most effective measure to ensure that “TSE’s request” doesn’t end up as a formal disclosure is for shareholders to press management at the AGMs to raise the share price.
It’s important that the company’s resources are used effectively to maximize corporate value, and such measures should be put in place to increase the share price above the current level.

Toyota Motor Corporation: How Long Are Production Constraints & Other Challenges Going To Last? – Key Drivers

By Baptista Research

Toyota managed to exceed analyst expectations in terms of revenue as well as earnings.
The company faced production constraints due to factors like semiconductor shortages, natural disasters, and the ongoing impact of COVID-19.
Their expert team members also remain committed to managing risks, investing in growth, and shaping the future of the automotive industry.

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Jun 09

Daily Brief Japan: NTT (Nippon Telegraph & Telephone), Toshiba Corp, Polaris Holdings and more

In today’s briefing:

NTT (9432 JP) – Would the Govt Sell All Its Shares? Why? How? How Long? Overhang?
Toshiba – Tendering Now Recommended
Toshiba (6502 JP): Risk/Reward as Board Unconvincingly Recommends JIP’s Offer
Toshiba’s Board Buckles Under – As Things Stand, Board Supports and Recommends JIP Offer
Polaris Holdings (3010): Experiencing a Growth Renaissance

NTT (9432 JP) – Would the Govt Sell All Its Shares? Why? How? How Long? Overhang?

The Kishida administration is looking for funding sources for its two big objectives – 1) raising the birthrate, 2) raising defense spending by 60% in 5yrs to 2% of GDP.
The second is not new. It was in an “order” PM Kishida gave to FinMin Suzuki and MinDef Hamada last November. They need ¥48trln by end 2027.
Yesterday, in an LDP meeting, the idea of changing the NTT Law so the government could sell more NTT shares was mooted. It’s worth thinking about.

Toshiba – Tendering Now Recommended

By Mio Kato

Toshiba announced today that its board had shifted stance on JIP’s upcoming tender and would recommend shareholders tender.
The special committee will review its opinion on the tender offer and based on that the company will offer another opinion when the tender commences.
Despite peers rising 13-30% since April an offer price increase still looks unlikely.

Toshiba (6502 JP): Risk/Reward as Board Unconvincingly Recommends JIP’s Offer

By Arun George

Toshiba Corp (6502 JP) Board now recommends shareholders accept Japan Industrial Partners (JIP)’s pre-conditional tender offer of JPY4,620 per share. The Board also effectively rules out a bump.
The Board unconvincingly recommends the offer in part on the premise that the IFA’s DCF valuation is unrealistic due to punchy forecasts and positive feedback from stakeholders.
The Board fails to consider that the peers have materially re-rated, the offer’s price ratio remains unattractive and the declining premium of the offer’s implied multiple vs peers’ multiples.

Toshiba’s Board Buckles Under – As Things Stand, Board Supports and Recommends JIP Offer

In March, when the JIP Offer for Toshiba Corp (6502 JP) was announced, the Toshiba Board supported the Offer but declined, at the time, to recommend it to shareholders.
“[The price] has clearly not reached the level at which it is possible to recommend to general shareholders that they tender their shares at this time.” That was then.
10 weeks later and the Board has a Revised Opinion. It has recommended the Offer for reasons which smack of resignation rather than appropriate deliberation. Investors beware.

Polaris Holdings (3010): Experiencing a Growth Renaissance

By Astris Advisory Japan

The waiting is over – Q4 FY3/2023 results highlighted 1) continued recovery in the hotel industry spurred by domestic and overseas traveler demand, 2) improvement in profit structure through business model transformation and increased accommodation demand has led to an increase in revenue, and 3) the completion of the acquisition of Red Planet’s business in the Philippines highlights the company’s expansion into overseas operations.
However, as the tourism industry in Japan is in a full-fledged recovery phase, the company believes it can achieve sustained growth.
Sound financial foundations – the company’s recapitalization strategy has been a success, and we maintain our view that there will be positive free cash flow generation in FY3/2024.

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Jun 08

Daily Brief Japan: Yaoko Co Ltd, Kawasaki Heavy Industries, Skymark Airlines, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

Yaoko: 34 Years of Record Profits
Kawasaki Heavy (7012) | Hydrogen Strategy Ignites Stock Market
Skymark Airlines Lockup Expiry – Still Doesn’t Seem Cheap with 50% of the Shares Being Unlocked
Diversity and Human Rights Are Also Challenges in Solving the Problem of Population Decline

Yaoko: 34 Years of Record Profits

By Michael Causton

One of the few long-term success stories in supermarkets is Yaoko, which recently celebrated 34 consecutive years of record operating profits.
Thanks to a combination of innovation and attention to detail, Yaoko’s financial performance continues to trounce larger rivals in the highly competitive food market in Kanto.
With Japan’s supermarket sector about to enter a period of consolidation, Yaoko will be one of the leaders.

Kawasaki Heavy (7012) | Hydrogen Strategy Ignites Stock Market

By Mark Chadwick

Japan’s newly approved hydrogen strategy has ignited a stock market rally in related names: KHI (+20%) Iwatani (+15%) Kansai Elec (+2%)
Japan government approved higher supply targets for hydrogen to bring the hydrogen strategy in line with the most recent energy mix targets
Kawasaki Heavy Industries plays a key role in Japan’s hydrogen supply chain, specializing in liquefied hydrogen and innovative initiatives

Skymark Airlines Lockup Expiry – Still Doesn’t Seem Cheap with 50% of the Shares Being Unlocked

By Ethan Aw

Skymark Airlines (9204 JP) raised US$242m in its Japan IPO. The shares began to trade on 14th Dec 2022, its six-month lockup will expire on 11th Jun 2023.
Skymark Airlines (SA) is a Japanese low-cost airline, being the third largest domestic airline according to the company. Unlike major airlines and other low-cost carriers, Skymark operates only domestic flights.
In this note, we will talk about the lock-up dynamics and updates since our last note.

Diversity and Human Rights Are Also Challenges in Solving the Problem of Population Decline

Population decline is not far in the future, and a situation is looming where rural municipalities will no longer be able to function to support social infrastructure.
The government is sticking to maintain the foreign technical internship in industries where labor is in short supply, and managing the number of foreign workers accepted for 5-10 year time-limit.
Accepting foreigners means that people must live in a society that recognizes diversity and each other’s human rights. Unfortunately, we are not ready to create such a society.

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Jun 07

Daily Brief Japan: Lifedrink , Mitsubishi UFJ Financial (MUFG), Sanken Electric, Rakuten, MARUKA FURUSATO and more

In today’s briefing:

Lifedrink Company (2585 JP) Ascends to TSE Prime and TOPIX But An Offering Produces Overhang
MUFG – What if No Yield Curve Control Relief?
Sanken (6707)| Attractive for Activists and Growth Investors
Rakuten’s Seiyu Sell off Will Boost Netsuper Business
MARUKA FURUSATO Corporation (7128 JP) – 1Q Follow-Up

Lifedrink Company (2585 JP) Ascends to TSE Prime and TOPIX But An Offering Produces Overhang

On 1 June, Lifedrink (2585 JP), which listed in early 2022, announced it would move to TSE Prime in late June, leading to a TOPIX inclusion in late July.
The offset to that was an announcement of an offering, whereby the PE Fund which brought the company to market would sell up to 3.87mm shares, effectively doubling float.
The offering is larger than the TOPIX inclusion. The stock fell the next day, rebounded, then rebounded 11% Monday. Now it’s up more and hit a lifetime closing high.

MUFG – What if No Yield Curve Control Relief?

By Daniel Tabbush

There may be no imminent yield curve control relief in Japan
MUFG market capitalization is up 2-3x and at a near decade peak level
Without YCC relief maybe the bank’s 60% rise in NPLs in the past 4 years is better noticed

Sanken (6707)| Attractive for Activists and Growth Investors

By Mark Chadwick

Sanken benefits from the structural growth in EVs, which should underpin revenue growth and margin accretion.
DCF valuation suggests the stock is slightly undervalued. However, better-than-expected revenue trends could easily drive significant upside.
Almost 30% of shares are held by activist investors – there is an attractive 57% upside to a SOTP valuation that could be realised over time.

Rakuten’s Seiyu Sell off Will Boost Netsuper Business

By Michael Causton

Rakuten sold its 20% stake in Seiyu to KKR at the end of May, divesting from direct ownership in physical supermarkets.
This provides a much needed injection of cash for Rakuten’s digital projects and should also help the online platform build trust with other supermarket chains interested in joining its platform.
Both companies reaffirmed their commitment to build the largest online food retail platform within the next two years.

MARUKA FURUSATO Corporation (7128 JP) – 1Q Follow-Up

In 1Q FY12/23, net sales rose 12.8%, and operating profit increased 20.3%; thus, MARUKA FURUSATO made good progress toward achieving 1H forecasts of 9.2% increase in net sales and 9.4% decline in operating profit.
As a large percentage of the company’s earnings comes from business orders, short-term earnings are unlikely to change much.
It appears, however, that the company is making greater than initially expected progress in reducing its order backlog as supply constraints, such as shortage of semiconductors, are eliminated.

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Jun 06

Daily Brief Japan: CELSYS, Nitori Holdings, Hogy Medical, AViC , Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

TOPIX Inclusions: Who Is Ready (Jun 2023)
Nikkei 225 Sep 2023 Review – Still Fastie, Nitori, Zozo, and Lasertec as Interesting Names
Hogy Medical (3593 JP): Mixed FY23 Result; Soaring Cost to Negatively Impact Profit in FY24
AViC (9554 JP) – 2Q Follow Up
Companies with High Frequency of Share Retirements Tend to Have a High Awareness of Cash Allocation

TOPIX Inclusions: Who Is Ready (Jun 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.
Zuiko Corp (6279 JP), Anycolor (5032 JP), and Lifedrink (2585 JP) will have TOPIX Inclusion events at the end of June (Zuiko) or July 2023 (the other two).
One of our pre-event TOPIX Inclusion candidates CELSYS (3663 JP) has experienced sharp price moves over the last few weeks.

Nikkei 225 Sep 2023 Review – Still Fastie, Nitori, Zozo, and Lasertec as Interesting Names

The Nikkei 225 Sep 2023 review has 2 months left of data collection. That means the rankings are quasi-fixed. So then the question is what to do with them.
There is a consultation in progress. You still have one week to respond, but that doesn’t change the names.
The top inclusion is the big one in dollar terms but low in liquidity. The next two are likely to be consumer names, and much more impactful.

Hogy Medical (3593 JP): Mixed FY23 Result; Soaring Cost to Negatively Impact Profit in FY24

By Tina Banerjee

Hogy Medical (3593 JP) reported mixed FY23 result. Revenue and operating profit were ahead of guidance while net profit missed guidance mainly due to a one-off loss of ¥464M.
For FY24, Hogy guided for 5% revenue growth. However, operating, and net profits are expected to decline 23% and 19%, respectively, due to rising costs and exchange rate fluctuations.
While Hogy will continue cost cutting and improving productivity, the company is not expected to fully offset the cost pressure. Hence near-term outlook for the company remains bleak.

AViC (9554 JP) – 2Q Follow Up

AViC announced its 2HFY9/23 earnings on May 15.
For 1H,Oct.–Mar., AViC posted net sales of ¥730 mn, +30.1% YoY, and operating profit of ¥140 mn, a slight year-on-year decline of 5.1%.
On account of a deterioration in the funding environment for start-up companies, AViC lost some of its start-up clients, which account for a percentage of clients that is not insignificant, and saw others cut their budget.

Companies with High Frequency of Share Retirements Tend to Have a High Awareness of Cash Allocation

With increasing pressure to buy back treasury stock to raise ROE, more companies with few tradable shares are expected to promptly retire treasury stock in the future.
Companies that have retired treasury stock three or more times show not only higher stock price valuations, but also superior growth policy scores, cash holding scores, and dividend policy scores.
Rather than simply focusing on the share repurchase, the focus should be on the overall cash allocation that led to it, including investment in growth and shareholder returns.

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Jun 05

Daily Brief Japan: Nexon and more

In today’s briefing:

Nexon Founder Family Hands Over 4.7 Trillion Won Worth of NXC to Korean Government

Nexon Founder Family Hands Over 4.7 Trillion Won Worth of NXC to Korean Government

By Douglas Kim

The late Nexon founder Kim Jung-Ju’s family recently paid nearly 4.7 trillion won worth of inheritance taxes to the Korean government by handing over 29.3% stake (paid-in-kind) in NXC Corp.
We view this handing over the 29.3% stake to the Korean government to be positive overall on Nexon in the near term.
However, we do not expect this could bring about change in controlling ownership of the Nexon Group in the near term to result in re-rating of the Nexon Group shares.

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Jun 04

Daily Brief Japan: Nexon, Rakuten, SCREEN Holdings and more

In today’s briefing:

Heads Up: Selling Event of a 30% Stake in NXC (Nexon Parent Company) Is Coming Soon
Last Week in Event SPACE:Tax-Loss Selling In Australia, China Conch/Anhui Conch, Canon, Rakuten
Screen Holdings (7735 JP): Positive Scenario Discounted

Heads Up: Selling Event of a 30% Stake in NXC (Nexon Parent Company) Is Coming Soon

By Sanghyun Park

As reported by a local news outlet (YTN), the Korean government will soon list the NXC stake on Onbid, the government’s online auction system (www.onbid.co.kr).
If the right buyer acquires the 30% stake in NXC, the family members may also sell their stake, leading to an unexpected price impact for Nexon (3659 JP).
Timing is critical, and the Korean government must aim to list the stake on Onbid as soon as possible, given its current revenue shortfall issue.

Last Week in Event SPACE:Tax-Loss Selling In Australia, China Conch/Anhui Conch, Canon, Rakuten

By David Blennerhassett

Australian tax-loss selling is a thing. Retail investors will take gains on things that run up in price, or get taken over, then look for losses.
The China Conch Venture Holdings (586 HK) / Anhui Conch Cement (600585 CH) ratio is at an all-time low. The implied stub is re-testing its all-time low.
Historically, Canon (7751 JP)‘s buybacks are aggressive. It may pay to observe market data to see when they are done. It may also pay to look at peer outperformance cycles.

Screen Holdings (7735 JP): Positive Scenario Discounted

By Scott Foster

The recent spike in the share price has discounted the positive scenario for sales and earnings, which is represented by management’s guidance for FY Mar-24.
The negative scenario – weaker than expected foundry demand, tougher than expected restrictions on exports to China – implies a significant downward revision to that guidance.
The share price is up 77.5% year-to-date and 36% since the end of April. That should be enough for now.

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Jun 03

Daily Brief Japan: Seven & I Holdings, Amvis Holdings Inc, Intelligent Wave, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

Seven & I: ValueAct’s Proposals Unlikely to Be Considered, Investor Activism Effectively Over
Amvis Holdings Inc (7071 JP): Strong H1FY23 Result; FY23 Guidance Unchanged; Expansion Continues
Intelligent Wave Inc. (4847 JP) – 3Q Follow-Up
Cash Flow Return Is Necessary Condition for Higher Stock Valuations; Shareholder Return Is Byproduct
Japan Remains Leadership; Actionable Pullback in Europe; Downgrading China/Hong Kong

Seven & I: ValueAct’s Proposals Unlikely to Be Considered, Investor Activism Effectively Over

By Oshadhi Kumarasiri

Last week, shareholders of Seven & I Holdings (3382 JP) rejected all four of the board nominees proposed by ValueAct.
ValueAct, seeing their higher vote count as a modest success, sent a letter to Seven & I, requesting a resumption of discussions despite the failed attempt to remove senior leadership.
We think the company is unlikely to seriously consider Value Act’s proposals any longer, indicating the end of the investor activism campaign.

Amvis Holdings Inc (7071 JP): Strong H1FY23 Result; FY23 Guidance Unchanged; Expansion Continues

By Tina Banerjee

Amvis Holdings Inc (7071 JP) recorded 42% revenue growth to ¥14.7B in H1FY23, driven by 33% increase in bed capacity and stable utilization rate. Operating profit grew 37% to ¥3.9B.
The company has guided for FY23 revenue of ¥30.7B (+33% YoY), operating profit of ¥7.9B (+28% YoY), and net profit of ¥5.4B (+26% YoY).
Amvis announced plans to open 16 facilities, steadily progressing to achieve the target of opening 23 facilities in FY24. The company targets utilization rate of 82–85% for existing facilities.

Intelligent Wave Inc. (4847 JP) – 3Q Follow-Up

IWI held an in-person briefing for 3Q FY23/6 results on Friday, May 12 at the Securities Analysts Association of Japan Kabutocho Heiwa Bldg. Annex 3F, which was also livestreamed via IR.
Stock Investment Information portal site Bridge Salon.
In SIR’s opinion, this 3Q results presentation hosted by IWI’s CEO and Representative Director Kunimitsu Sato was the most upbeat since he assumed office in Sep-2020.

Cash Flow Return Is Necessary Condition for Higher Stock Valuations; Shareholder Return Is Byproduct

The most important factor in increasing stock valuations is overseas investors, and a clue can be found in exploring what kind of companies they tend to invest in.
It is a company with high cash holdings and a high growth policy score, i.e., a company that generates ample cash flow. This should be considered a necessary condition.
As foreign ownership increases, shareholder returns such as share buybacks will also be implemented to review cash allocations and improve board practices, so these can be considered byproducts.

Japan Remains Leadership; Actionable Pullback in Europe; Downgrading China/Hong Kong

By Joe Jasper

There continues to be little traction above $93 on the MSCI ACWI (ACWI-US), which remains the top-end of our anticipated 2023 trading range.
At the same time, we cannot get too bearish until there is a break below $90.50 short-term support.
EURO STOXX 50 pulling back to 4100-4200 buy area. TOPIX holding above 2120 support. Buy ideas within Technology, Construction Materials, gold miners, Utilities, other defensives.

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Jun 02

Daily Brief Japan: Anycolor, Sawai Group Holdings, Tokyo Stock Exchange Tokyo Price Index Topix, D.Western Therapeutics Insti and more

In today’s briefing:

Anycolor (5032 JP) – Moving to Prime Next Week, TOPIX Inclusion Next Month
Sawai Group Holdings (4887 JP): FY23 Result Missed Guidance; FY24 Guidance Calls For Lower Profits
When Will Fiduciary Duty Take Root in Japan?
D. Western Therapeutics Institute (4576 JP) – News Flash

Anycolor (5032 JP) – Moving to Prime Next Week, TOPIX Inclusion Next Month

Anycolor (5032 JP) IPOed a year ago, rose several-fold, saw the underwriting broker offer a huge target price, then it fell. There was an offering. And then the murders began.*
The offering in January, discussed here, created overhang, and the stock fell sharply in the next 6 weeks. Blowout earnings came in mid-March. Along with a TSE Prime transfer application.
Now we have the Prime promotion on 8 June, which leads to a TOPIX inclusion on 28 July.

Sawai Group Holdings (4887 JP): FY23 Result Missed Guidance; FY24 Guidance Calls For Lower Profits

By Tina Banerjee

Sawai Group Holdings (4887 JP) reported muted FY23 result, with all parameters missing guidance. Miss was due to the lower-than-expected performance in Japan, which contributed 82% of revenue.
Sawai’s U.S. business revenue increased 22% YoY to ¥36.6B, beating guidance of ¥32.2B. The U.S. business is now back to profitability by reporting higher-than-expected operating profit of ¥930M.
Sawai guided for 8% revenue growth in FY24. Core operating income is projected to decline due to the soaring raw material and energy prices and an increase in upfront costs.

When Will Fiduciary Duty Take Root in Japan?

Although listed companies are required to consider the interests of minority shareholders, parent-subsidiary listings should inherently be avoided because it’s difficult to reconcile conflicting interests between parent and its subsidiary.
This case questioned whether the FamilyMart directors considered the interests of minority shareholders. The fact that fiduciary duty is scarce in Japan could have been a factor behind this case.
This lack of understanding may also be a factor preventing independent directors from fulfilling their functions, as some CEOs are seen to consider independent directors as advisors rather than managers.

D. Western Therapeutics Institute (4576 JP) – News Flash

DWTI announced that out-license partner Dutch Ophthalmic Research Center (International) B.V. (DORC) has submitted a new drug application for approval of DW1002 to the National Medical Products Administration (NMPA) of China for the indication of ILM staining in vitreoretinal surgery (May 30 local time).
No milestone will be received as a result of this transaction, and there will be no change to the forecast of financial results for the fiscal year ending December 31, 2023.
DWTI granted an exclusive sublicense for DW-1002 for all regions worldwide outside Japan to DORC, which has been manufacturing and selling the product in Europe and other countries since September 2010.

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Jun 01

Daily Brief Japan: SBI Shinsei Bank, D.Western Therapeutics Insti, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

(Mostly) Asia M&A, May 2023: Allkem / Livent, InvoCare, Golden Eagle, Yita Coal, Shinsei Bank
D. Western Therapeutics Institute (DWTI) (4576 JP) – 1Q Follow-Up
The Starting Point Is to Set “Sustainable Expansion of Corporate Value” As a Management Goal

(Mostly) Asia M&A, May 2023: Allkem / Livent, InvoCare, Golden Eagle, Yita Coal, Shinsei Bank

By David Blennerhassett

For the month of May, 8 new deals (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$15bn.
The average premium for the new deals announced (or first discussed) in May was 32%.
This compares to the average premium for all deals in 2022 (106 deals), 2021 (165 deals), 2020 (158 deals), and 2019 (145 deals) of 41%, 33%, 31%, and 31% respectively.

D. Western Therapeutics Institute (DWTI) (4576 JP) – 1Q Follow-Up

According to “Ophthalmology Drugs Global Market Report 2021: COVID 19 Impact and Recovery to 2030” issued by the Business Research Company in Feb-2021, the global ophthalmology drugs market is expected to grow from $22.03 billion in 2020 to $32.64 billion in 2025 (+8.2% CAGR).
M&A in this segment has become active in recent years, with global eye care leader Alcon (SIX/NYSE:ALC) acquiring DWTI’s closest rival in the US, Aerie Pharmaceuticals, Inc. in Nov-2022, adding Rhopressa® (similar to DWTI’s GLANATEC®) among others, and Aerie’s development pipeline.
Over time with progress in execution of the development pipeline, and as part of growth strategy to diversify revenue streams, DWTI’s basic business model of drug discovery and early out-licensing has evolved to include 1) from 2015, in-licensing of later stage development products, 2) from 2018, collaborative drug creation applying DWTI’s technical expertise to assist in joint R&D of products of other firms, and 3) from 2018, extending development of original in-house products beyond early out-licensing as far as proof of concept (PoC) through Phase IIb.

The Starting Point Is to Set “Sustainable Expansion of Corporate Value” As a Management Goal