Japan

In today’s briefing:

Astellas Pharma (4503 JP): FY23 Result and FY24 Guidance Meet Expectation; New Drugs Hold Key
(Mostly) Asia M&A, April 2023: Arcland Service, Lian Beng, Silk Laser, Breaker Resources, Blackmores
The Reasons for the Criteria Selected for the Directors’ Skills Matrix Are Still Unclear

Astellas Pharma (4503 JP): FY23 Result and FY24 Guidance Meet Expectation; New Drugs Hold Key

By Tina Banerjee

Astellas Pharma (4503 JP) recorded 17% growth in revenue to ¥1,519B in FY23, driven by 24% growth of Xtandi. Core operating profit grew 17% and core net profit increased 18%.
The company has guided for flat revenue and core operating profit for FY24, mainly due to negative impact of Fx.
Astellas expects to obtain FDA approval for fezolinetant for vasomotor symptoms associated with menopause in May 2023. The company will file for marketing approval for zolbetuximab in Q1FY24.

(Mostly) Asia M&A, April 2023: Arcland Service, Lian Beng, Silk Laser, Breaker Resources, Blackmores

By David Blennerhassett

For the month of April, 6 new deals (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$3bn.
The average premium for the new deals announced (or first discussed) in April was 23%.
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.

The Reasons for the Criteria Selected for the Directors’ Skills Matrix Are Still Unclear

The rapid spread of companies, especially large companies, disclosing the skills matrix was triggered by Supplemental Principle 4-11-(i), which was added to the Corporate Governance Code.
While more companies focus disclosure on skills matrix of directors, it’s questionable whether these criteria have been validated to select those who can help expand the value of the company.
The process should ensure that the nomination process is based on the skills needed to run the company, not on who is close to the president of the company.

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Apr 29

Daily Brief Japan: Kansai Paint, Hokkoku Financial Holdings, Srg Takamiya, iShares MSCI ACWI ETF and more

In today’s briefing:

Kansai Paint (4613) Announces Large Sale of Cross-Holdings – Buyback Here We Come
Hokkoku Financial (7381) Earnings Report Delay But HUGE Buyback. Again.
Takamiya (2445 JP) Initiation Report
Stay Tactically Overweight Defensives; Remain Overweight Europe, Japan, & EAFE. Buys in Defensives

Kansai Paint (4613) Announces Large Sale of Cross-Holdings – Buyback Here We Come

Today after the close, Kansai Paint (4613 JP) announced it would sell 3 investment securities in the current quarter and would book a gain of “around ¥30bn.”
As discussed in Kansai Paint (4613 JP) Secondary Offering & Buyback and All the Subsequent Flows, Toyota’s sale of KP shares meant KP could sell Toyota shares. Now they will.
This is a set-up to another buyback, eventually to unwind more in-bound cross-holdings and to raise ROE.

Hokkoku Financial (7381) Earnings Report Delay But HUGE Buyback. Again.

Yesterday Hokkoku Financial Holdings (7381 JP) came out with an odd decision to delay earnings from 28 April to 8 May. Volume traded.
Today, despite not reporting earnings, the Kanazawa-based regional bank announced a BIG buyback with subsequent share cancellation. This was not unexpected. They have an aggressive policy which started last year.
Hokkoku Bank policy introduced last year is special. It has worked. They are pursuing it. Expect more policy action like this as banks report.

Takamiya (2445 JP) Initiation Report

By Sessa Investment Research

Accelerating de facto standardization of the Iq System
Guiding for double-digit growth in sales and profit in FY23/3
Roadmap for sustainable growth. Takamiya is currently implementing its medium-term management plan ending in FY2024/3.

Stay Tactically Overweight Defensives; Remain Overweight Europe, Japan, & EAFE. Buys in Defensives

By Joe Jasper

Our 2023 outlook, initially discussed in our January 6th 2023 Int’l Compass, was for $93 to cap upside on the MSCI ACWI (ACWI-US); this has again proven prescient.
Since late-January/early-February we have recommended shifting to defensives, and MSCI ACWI defensive Sectors including Health Care (IXJ-US), Utilities (JXI-US), and Consumer Staples (KXI-US) are now hitting 3-4-month RS highs.
With the ACWI-US just now starting to turn down after testing $93, we continue to recommend a tactical overweight to the aforementioned defensive Sectors, and also to gold miners (GDX-US).

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Apr 28

Daily Brief Japan: Fast Retailing, Fujitsu Ltd, Kirin Holdings, JVC KENWOOD, Nidec Corp, Jeol Ltd, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

The Fast Retailing (9983) Selldown Conundrum – Not Now, But Soon… Then For A Long Time
BIG Fujitsu (6702 JP) Buyback – It’s a Lot, but Not, but Still Big
Kirin’s Bid for Blackmores: Leveraging Regulatory Expertise to Enter China’s Supplement Market
JVC Kenwood (6632) – After Two Banner Years, Earnings to Fall, but Large Buyback For 6mos
Nidec (6594 JP): Buy into Current Weakness
Quiddity Leaderboard JPX-Nikkei 400: End-Apr 2023
Even Though the June AGM Was Spread over 4 Days, 26.4% of the Companies Were Concentrated on June 29

The Fast Retailing (9983) Selldown Conundrum – Not Now, But Soon… Then For A Long Time

Fast Retailing (9983 JP) announced Q2 earnings two weeks ago. Revenues were good. OP was good. And the company raised full-year forecasts for Sales, OP, Pre-tax, and Net Profit.
The stock popped sharply. It isn’t “cheap” but it is under-owned, actively. And revenues up 20%yoy is a very good look.
The Conundrum: the more active investors decide they like it, the more there is to sell. That creates interesting opportunities.

BIG Fujitsu (6702 JP) Buyback – It’s a Lot, but Not, but Still Big

Fujitsu earnings are out. Forecasts are in, lighter than consensus.
But there is a buyback. Looking at the way last year’s was executed is not that informative but it may be useful.
This one is big enough to matter but not big enough to get excited about until we get confirmation.

Kirin’s Bid for Blackmores: Leveraging Regulatory Expertise to Enter China’s Supplement Market

Kirin Holdings (2503 JP) is eyeing the vitamin game with a proposal to buy Blackmores at AU$95 per share, representing a 23.7% premium over the stock’s most recent closing price.
Blackmores Ltd (BKL AU)‘s expertise in navigating China’s stringent regulations could be the missing piece for Kirin to gain access to the lucrative supplement market in China.
Our main concern is Kirin’s history of unsuccessful overseas business acquisitions, particularly outside of its core beer business.

JVC Kenwood (6632) – After Two Banner Years, Earnings to Fall, but Large Buyback For 6mos

Today, JVC KENWOOD (6632 JP) announced earnings, its forecast for this next year, and the outlines of its new Mid-Term Management Plan.
That plan has the run to 2025 seeing sales rise slightly, Operating margins rising slightly. EBITDA margins at last year’s level or better, and Operating CF like last year.
They also announced a buyback which they hoped would help them boost ROE and PBR to 1.0x as quickly as possible. The TSE pressure is working.

Nidec (6594 JP): Buy into Current Weakness

By Scott Foster

FY Mar-23 results fell short of expectations and management is guiding for a weak 1H in the new fiscal year. This looks like a buying opportunity.
The E-Axle business should reach break-even this year. Rising EV demand in China, Europe and elsewhere, plus general electrification, should take the overall Automotive operating margin to 10%.
Projected valuations are attractive even if sales do not reach management’s ambitious target.

Quiddity Leaderboard JPX-Nikkei 400: End-Apr 2023

By Janaghan Jeyakumar, CFA

JPX-Nikkei 400 is composed of common stocks listed on the Tokyo Stock Exchange. It is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents.
A periodic review is conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year. We look at the potential forward inclusions and removals every month.
Below is a look at potential Inclusions and Removals for the JPX-Nikkei 400 Rebalance to come in August 2023 based on trading data as of end-April 2023.

Even Though the June AGM Was Spread over 4 Days, 26.4% of the Companies Were Concentrated on June 29

This year, 26.4% of companies will hold AGMs on June 29. The trend will continue, with 1/4 companies holding AGMs on the day before the last business day of June.
Electronic provision of shareholder meeting materials (3-4 weeks in advance) and electronic voting platforms for institutional investors progressed, mainly for prime market listed companies.
The mismatch between supply and demand continues, with only 26.9% of companies providing English translations of business reports (materials for AGMs), a much-needed service for global institutional investors.

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Apr 27

Daily Brief Japan: Tokyo Gas, Skylark Co Ltd, Isetan Mitsukoshi Holdings Ltd, Softbank Group, CyberAgent Inc and more

In today’s briefing:

Tokyo Gas (9531 JP) Mega Buyback Announced
Skylark Holdings: A Big Upgrade to Guidance Could Be on The Horizon
Isetan-Mitsukoshi: ¥300 Billion from Just One Store
SoftBank Group (9884 JP) – Revolut’s Impending Valuation Write-Down?
CyberAgent: Growth Avenues Seem Limited and Further Downside to Consensus

Tokyo Gas (9531 JP) Mega Buyback Announced

Five days ago, Tokyo Gas (9531 JP) announced a revision to earnings for the year to 31 March 2023. Today they reported results, and announced March 2024 guidance.
The company also announced a buyback programme to spend up to ¥113 billion to repurchase up to 53mm shares (12.2% of TSO). ¥113 billion is a very specific number.
With the price where it is, ¥113bn is “only” 9.6% of shares out but this is very interesting indeed.

Skylark Holdings: A Big Upgrade to Guidance Could Be on The Horizon

By Shifara Samsudeen, ACMA, CGMA

The removal of COVID-19 testing requirements for Chinese tourists is expected to increase tourist arrivals from the Greater China region.
In addition, consensus estimates for Skylark Co Ltd (3197 JP) are increasing due to the company’s faster-than-expected same-store sales recovery.
Skylark’s annual operating profit could reach ¥20bn if revenues return to pre-COVID levels, which is significantly higher than consensus of ¥5.2bn and guidance of ¥6.0bn.

Isetan-Mitsukoshi: ¥300 Billion from Just One Store

By Michael Causton

Isetan Shinjuku has always outperformed competitors by a large distance but the store’s management is intent on widening this gap further.
The key will be a focus on premium customers with ever more granular data sets to personalise marketing. 68% of sales now come from cardholders, compared to 50% in 2018.
While dependence on just a few stores makes Isetan Mitsukoshi Holdings Ltd (3099 JP) vulnerable to downturns – such as the loss of tourist traffic – these stores are also resilient.

SoftBank Group (9884 JP) – Revolut’s Impending Valuation Write-Down?

By Victor Galliano

We have already questioned SoftBank’s private company valuation marks; a Schroders trust recently announced a 46% valuation cut in its Revolut investment, acquired at the July 2021 funding round
SVF2 acquired 5% of Revolut, also in July 2021; third party valuation providers indicate that the Revolut USD valuation has fallen by at least 50% in 2022
July 2021 was Revolut’s most recent funding round, implying that Softbank may yet need to mark down its valuation; this could also apply to the funds’ other private companies

CyberAgent: Growth Avenues Seem Limited and Further Downside to Consensus

CA reported 2QFY09/2023 results today. Revenue increased 2.4% YoY to ¥195.6bn (vs consensus ¥191.0bn) while operating profit declined 27.0% YoY to ¥18.8bn (vs consensus ¥18.0bn).
The viewership for AbemaTV has fallen back to pre-FIFA levels and revenue growth from AbemaTV has been on a declining trend.
CA didn’t release any gaming titles despite mentioning about 3 for 2022. The company has mentioned about 2 titles for FY09/2023 and the segment seems struggling with producing hit titles.

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Apr 26

Daily Brief Japan: Shimano Inc, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

Shimano (7309) | The Hangover
Next Corporate Governance Code Revision May Further Dissolve Parent-Subsidiary Listings

Shimano (7309) | The Hangover

By Mark Chadwick

Shimano reported Q1 results post close. Operating profit fell 26% YoY and full year guidance was cut 21%
We believe that sales in 2023 have simply reverted back to trend. We expect sales to grow in 2024 as underlying demand drivers remain intact
With the stock down 9% over the past year, we believe the market has discounted the profit revision. We see good value at 17x EV/EBIT

Next Corporate Governance Code Revision May Further Dissolve Parent-Subsidiary Listings

As statements of reasonableness are disclosed with respect to subsidiary listings that are less than reasonable, further elimination of parent-subsidiary listings is expected to progress.
The issue of parent-subsidiary listings will to come under further scrutiny, as no fundamental solution can be expected even if formal system for ensuring independence of a subsidiary is established.
Extending disclosure to affiliate relationships is a commendable step forward not only for minority shareholders of dependent companies, but also for shareholders of the listed parent company.

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Apr 25

Daily Brief Japan: Keisei Electric Railway Co, Rakuten Bank , Nidec Corp, Oriental Land and more

In today’s briefing:

Keisei (9009): Connecting Narita and Tokyo
Rakuten Bank (5838 JP): Premium Growth Neobank Still Trading at Attractive Valuations
Nidec (6594) | Remain Cautious Despite Bullish Guidance
Oriental Land: The 33.5x FY27 Consensus OP Bubble
Rakuten Bank – In Japan With 65% Loan Growth

Keisei (9009): Connecting Narita and Tokyo

By Henry Soediarko

Japan’s tourism scene is back in action albeit still missing a contribution from China.
On-The-Ground research in Japan has confirmed the above point and the crowded Narita airport.
Keisei Electric Railway Co (9009 JP)operates Skyliner which connects Narita Airport to downtown Tokyo.

Rakuten Bank (5838 JP): Premium Growth Neobank Still Trading at Attractive Valuations

By Victor Galliano

The sharp run-up in the share price since its IPO does not, in our view, mean that Rakuten Bank’s rally is done; there is further fundamental justification for a re-rating
Rakuten Bank trades on a LTM PE multiple of 14.4x, LTM PBV ratio of 1.6x and an ROE of 13.2%, which is the best return of our neobank peers
Relative to its peer group, Rakuten Bank has premium long-run growth prospects; conservatively estimating Rakuten Bank’s growth (8% pa), implies a PEG ratio in the range of 1.2x to 1.3x

Nidec (6594) | Remain Cautious Despite Bullish Guidance

By Mark Chadwick

NIdec’s full year FY3/23 operating profit declined 41% to Y100b, far short of analyst estimates
However, FY3/24 corporate guidance for Y220b in operating profit is very bullish and assumes a V-shaped recovery in margins
Given the macro outlook and lack of clarity on the restructuring charges, we prefer to remain cautious.

Oriental Land: The 33.5x FY27 Consensus OP Bubble

Oriental Land (4661 JP)’s revenue in 4QFY23 could miss consensus by around 12%, but its profitability could exceed consensus expectations by around 20%.
The shares did not react to beating consensus and revising up its guidance in the last quarter. This suggests limited upside risk for the company’s shares following 4QFY23 earnings.
Despite consensus medium-term OP estimates, Oriental Land appears to be significantly overpriced, with shares trading at a consensus FY27 EV/OP multiple of 33.4x.

Rakuten Bank – In Japan With 65% Loan Growth

By Daniel Tabbush

There are few, if any banks, in Japan that compare with Rakuten’s 65% loan growth
The newly listed interbank stands out with exceptional ROE, not from leverage
Credit metrics remain strong, with NPL cover especially high vs peers

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Apr 24

Daily Brief Japan: Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

Might Consider Creating Mechanism to Allocate Companies’ Cash in Cash Cow to Companies that Can Grow

Might Consider Creating Mechanism to Allocate Companies’ Cash in Cash Cow to Companies that Can Grow

Share buybacks are likely to increase considerably in FY2023. One of the reasons for this is that the TSE has requested companies with stagnant stock prices to disclose improvement measures.
More important than the amount of share repurchase is how much ROE increased as a result. Whether shareholder returns were adequate for cash reserves and cash flow should be examined.
While Japanese companies today are in a cash cow situation as a whole, they are very cautious about investing aggressively.

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Apr 23

Daily Brief Japan: Yamada Denki, Rakuten Bank , Arcland Service and more

In today’s briefing:

Last Week in Event SPACE: Yamada Denki, Genting, HKBN, Toyo Construction
ECM Weekly (23rd Apr 2023) – Rakuten Bank, Merdeka, ZJLD, Mankind, Lalatech, IMotion, Anta, KIT
(Mostly) Asia-Pac Weekly Risk Arb Wrap: Silk Laser, Arcland, Essential Metals, AAG, Lian Beng, Oishi

Last Week in Event SPACE: Yamada Denki, Genting, HKBN, Toyo Construction

By David Blennerhassett

Yamada Denki (9831 JP) lowering the March 2023 div to ¥12/share vs ¥18/share last year was just weird. And bodes badly. We need a lightbulb moment for a lightbulb dilemma.
Genting Bhd (GENT MK)‘s implied stub and simple ratio (GENT/ Genting Singapore (GENS SP)) are currently at muti-year trough levels.
Buy Toyo Construction (1890 JP) <¥970. The proposed dividend could be in danger should YFO spill the board; but spilling the board to get better governance is a good thing.

ECM Weekly (23rd Apr 2023) – Rakuten Bank, Merdeka, ZJLD, Mankind, Lalatech, IMotion, Anta, KIT

By Sumeet Singh

Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
All eyes were on Rakuten Bank (5838 JP) listing this week. It didn’t disappoint, neither did Merdeka Battery Materials.
Anta Sports Products (2020 HK) pulled off one of the largest placements so far in 2023, despite being net cash.

(Mostly) Asia-Pac Weekly Risk Arb Wrap: Silk Laser, Arcland, Essential Metals, AAG, Lian Beng, Oishi

By David Blennerhassett

There are 41 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
Two new deals were discussed on Smartkarma this past week: Wesfarmers (WES AU)‘s tilt for Silk Laser (SLA AU); and Arclands Corporation (9842 JP)Offer for Arcland Service (3085 JP).
Key updates took place for Essential Metals (ESS AU), Genesis Minerals (GMD AU), Alliance Aviation (AQZ AU), AAG Energy (2686 HK), Lian Beng (LBG SP), and Oishi Group (OISHI TB).

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Apr 22

Daily Brief Japan: Toshiba Corp, Recruit Holdings, Tokyo Stock Exchange Tokyo Price Index Topix and more

By Shifara Samsudeen, ACMA, CGMA

In today’s briefing:

Toshiba – HDD Business Risk
Recruit: Further Drop in US Job Openings Adds Strain on HRTech Earnings
To Change a Company that Didn’t Change when Activist Investors Asked for Solutions to Their Issues

Toshiba – HDD Business Risk

By Mio Kato

We have been tracking Toshiba’s rapidly deteriorating HDD business over the last few quarters.
Recent trends raise further concerns about the long-term viability of the business.
In particular, visibility remains low on a strong recovery in demand and until that occurs the possibility of a YoY deterioration remains high.

Recruit: Further Drop in US Job Openings Adds Strain on HRTech Earnings

US job openings in February fell to 9.9m, lowest since May 2021 and 0.5m below market expectations. The job openings are forecast to drop further in March 2023.
Recruit Holdings (6098 JP) ‘s 3QFY03/2023 profits declined significantly with labour markets returning to normalcy and we expect further drop in margins going forward.
HR Tech drives most of Recruit’s profits and we expect the company’s earnings to decline going forward with weakening of labour markets globally.

To Change a Company that Didn’t Change when Activist Investors Asked for Solutions to Their Issues

Now that percentage of foreign shareholders has reached 30%, other foreign shareholders are more likely to support activist investors’ proposals, and companies are paying more attention to communication with investors.
While cross-shareholdings held by banks etc. are declining, foreign shareholders and trust banks are on the rise. The holdings held by trust banks are managed by domestic institutional investors.
Whether their exercise of voting rights changes from the past will be the key to improving governance and moving forward with solutions to issues that have been postponed until now.

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Apr 21

Daily Brief Japan: Rakuten Bank , Seven & I Holdings, Nidec Corp and more

In today’s briefing:

Rakuten Bank (5838) IPO – Post-IPO Trading Volume Decay and RB’s Place Among Banks (Part 3)
Seven & I: Founder’s Death Fuels Value Act’s Activism, Angers The Board, Reduces Short Thesis Risk
Nidec (6594) | FY3/24 Guidance Risk

Rakuten Bank (5838) IPO – Post-IPO Trading Volume Decay and RB’s Place Among Banks (Part 3)

To look at the Rakuten Bank (5838 JP) IPO and how trading and pricing may occur, some are looking at SBI Sumishin Net Bank (7163 JP).
To understand the movements of SBI Sumishin Net Bank, it may help to look at other IPOs in Japan and how they trade post-IPO.
I looked at the last 200+ IPOs in Japan to understand volume decay and price evolution. It leads to suggestions for investors regarding Rakuten Bank.

Seven & I: Founder’s Death Fuels Value Act’s Activism, Angers The Board, Reduces Short Thesis Risk