Japan

In today’s briefing:

Time to Move Forward to Corporate Governance 2.0, Where the Substance Will Be Questioned

Time to Move Forward to Corporate Governance 2.0, Where the Substance Will Be Questioned

Although Fujitec’s corporate governance framework has improved in places, the Statutory Auditor and Nominating Committee aren’t functioning, and the Board of Directors with a majority of independent directors isn’t functioning.
METI survey shows that 20% of independent directors are friends of CEO, a glimpse of how companies expect independent outside directors to play a role in endorsing executive management policies.
With several revisions of Corporate Governance Code, companies have ostensibly made steady progress in corporate governance efforts. However, whether this has been accompanied by substance varies from company to company.

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Jan 06

Daily Brief Japan: Artspark Holdings and more

In today’s briefing:

TOPIX Inclusions: Who Is Ready (Jan 2023)

TOPIX Inclusions: Who Is Ready (Jan 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.
This insight is a follow-up to TOPIX Inclusions: Who Is Ready (Dec 2022).
Our latest top pick for TOPIX Inclusion pre-events is Artspark Holdings (3663 JP).

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Jan 05

Daily Brief Japan: SBI Shinsei Bank, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

2023 High Conviction – SBI Shinsei Bank (8303 JP) – Still Reading Between the Lines
How Far Has Corporate Governance Progressed in 2021? (1) ~ Key Actions Section

2023 High Conviction – SBI Shinsei Bank (8303 JP) – Still Reading Between the Lines

By Travis Lundy

SBI Shinsei Bank (8303 JP) was my High Conviction reco in late 2020 for 2021 at ~¥1200/share. It was my High Conviction reco in late 2021 for 2022 at ¥1900/share.
I did not get around to writing it in late December 2022, but on the first day of trading I offer Shinsei as a 2023 high conviction recommendation.
What’s new? Not a lot, but Reading Between The Lines is still top drawer stuff.

How Far Has Corporate Governance Progressed in 2021? (1) ~ Key Actions Section

Shareholder returns, including dividend policy and treasury stock retirement/buyback and growth policies improved slightly. Still, cash allocations are weak in both shareholder returns and growth, so cash is piling up.
The policy shareholdings is decreasing year by year, but the holdings is so large that they still account for a large % of total assets, so cash is piling up.
Companies with ROEs above 12% achieved even higher returns, and Tobin’s Q1.2-1.4 companies (with higher valuations than average) increased slightly. Investors may have valued companies that exhibit higher returns.

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Jan 04

Daily Brief Japan: Seven & I Holdings, Ibiden Co Ltd, Softbank Group, Peptidream Inc and more

In today’s briefing:

2021 High Conviction Seven & I: Major Headwinds Deflected By The Yen Depreciation, Upside Is Limited
Ibiden (4062 JP): Another Chance for Long-Term Investors
Softbank Group – Vision Fund: Gains on Dollar Basis in Q3 but Stronger Yen Points to Quarterly Loss
Peptidream (4587 JP): Rising Drug Discovery Collaborations To Drive Growth; New Revenue Stream Added

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

By Oshadhi Kumarasiri

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

Ibiden (4062 JP): Another Chance for Long-Term Investors

By Scott Foster

Operating profit hit a 15-year high in the six months to September. That appears to have been the cyclical peak.
Guidance for 2H of FY Mar-23 is probably conservative, but year-on-year profit comparisons will probably be negative for at least a year.
After rising by 44% from mid-October to mid-November, Ibiden’s share price has given up more than half that gain. Long term investors may again look for an entry point.

Softbank Group – Vision Fund: Gains on Dollar Basis in Q3 but Stronger Yen Points to Quarterly Loss

By Kirk Boodry

The Vision Fund public portfolio closed Q3 in the black as gains for Didi and AutoStore offset weakness for Asian investments Goto and Coupang. We have included updated tables inside
On a yen basis, however, Softbank will likely post a Q3 segment loss for Vision Fund as a weaker dollar more than offsets the local currency gains.
SBG shares have traded close to the 35% discount to NAV level since end-November but that could expand if sentiment on China weakens or tech valuations remain volatile

Peptidream (4587 JP): Rising Drug Discovery Collaborations To Drive Growth; New Revenue Stream Added

Peptidream Inc (4587 JP) aspires to be a world leader in drug discovery and development to address unmet medical needs by leveraging on proprietary PDPS technology, a peptide discovery platform.
Driven by expanding research collaboration programs and progressing pipelines, Peptidream guided for revenue of ¥13–15B from drug discovery and development business in 2022, up from ¥9.4B in 2021.
Foray into Radiopharma adds a regular revenue stream. Peptidream expects the business to report revenue of ~¥11.5B and remain marginally profitable for 2022.

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Jan 03

Daily Brief Japan: Oriental Land, Toyo Construction, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

Nikkei 225 March Review – Quiddity Leaderboard (Jan 2023)
Merger Arb Mondays (02 Jan) – Toyo Construction, Origin Energy, Warrego, Nitro, Fengxiang
How Far Has Corporate Governance Progressed in 2021? (1) ~ Board Practices Section
(Mostly) Asia-Pac Weekly Risk Arb Wrap: OZ Minerals, Warrego, Shandong Fengxiang, Toyo Construction

Nikkei 225 March Review – Quiddity Leaderboard (Jan 2023)

By Travis Lundy

There are four weeks left to go in the data period for calculating the next Nikkei 225 review for March, likely to be announced ~7 March 2023.
The 3 ADDs should be Oriental Land (4661), Renesas Electronics (6723) , and Japan Airlines (9201). The 3 DELETES Toho Zinc (5707) , Toyobo (3101), and Nippon Light Metal (5703)
Oriental Land is the one to watch in March. Slight underperformance would boost buying impact. The Sep23 rebalance and subsequent ones are smaller in size but more interesting in impact.

Merger Arb Mondays (02 Jan) – Toyo Construction, Origin Energy, Warrego, Nitro, Fengxiang

By Arun George

We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
Highest spreads – Alliance Aviation Services (AQZ AU), 21Vianet Group (VNET US), Golden Energy & Resources (GER SP), Genesis Minerals (GMD AU), 111 Inc (YI US), Origin Energy (ORG AU).
Lowest spreads – Nitro Software Ltd (NTO AU), Norwest Energy NL (NWE AU), Chip Eng Seng Corp (CHIP SP), Conexio Corp (9422 JP), Elmo Software (ELO AU).

How Far Has Corporate Governance Progressed in 2021? (1) ~ Board Practices Section

The revised Corporate Governance Code and the inclusion of prime market listing criteria have resulted in significant improvements in % of independent directors and in the practices of Nominating/Compensation Committee.
Meanwhile, the chairmanship of the board of directors and the ratio of female directors, for which the Code didn’t specify improvements or provide numerical target, are improving at modest pace.
There is the issue of whether the board/committees require independent directors to function fully independently, and the % of female directors indicates the seriousness of improving management and governance.

(Mostly) Asia-Pac Weekly Risk Arb Wrap: OZ Minerals, Warrego, Shandong Fengxiang, Toyo Construction

By David Blennerhassett

There are 44 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
No new deals were discussed on Smartkarma in the past week.
Key updates took place for: OZ Minerals Ltd (OZL AU), Warrego Energy (WGO AU), Shandong Fengxiang (9977 HK), and Toyo Construction (1890 JP).

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Dec 30

Daily Brief Japan: SBI Holdings, Tokyo Stock Exchange Tokyo Price Index Topix, Honeys Holdings Co., Ltd. and more

In today’s briefing:

JPX-Nikkei 400 Rebal 2023: End-Dec 2022
Is the Solution to the Problem to Make the AGM Attractive?
Honeys: Sweet Profit in a Downturn

JPX-Nikkei 400 Rebal 2023: End-Dec 2022

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-December 2022.

Is the Solution to the Problem to Make the AGM Attractive?

Since many companies struggle to meet quorum requirements for AGMs, many companies mail accompanying documents along with the voting form in paper form, even though Companies Act has been amended.
The use of DX, such as hybrid shareholder meetings and online voting, comes to mind to meet quorum requirements for shareholder meetings, and this will help reduce administrative costs.
The fundamental issue, however, is that there are many conventional AGMs with little appeal and little substance, such as few managers whom we would really like to hear speak live.

Honeys: Sweet Profit in a Downturn

Honeys is proving a resilient provider of low-cost women’s basic fashions in Japan.
While it struggled after losing the fickle younger fan base five years ago, Honeys has bounced back through careful control of costs that has kept prices down.
Along with Workman and Shimamura, Honeys looks to be one of the longer-term beneficiaries of the shift to discount apparel, particularly in rising operating margins.

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Dec 29

Daily Brief Japan: Sawai Group Holdings and more

In today’s briefing:

Sawai Group Holdings (4887 JP): Continued Price Erosion Is Weakening Earnings Prowess

Sawai Group Holdings (4887 JP): Continued Price Erosion Is Weakening Earnings Prowess

Sawai Group Holdings (4887 JP) is negatively impacted by drug reimbursement pricing in Japan. H1FY23 revenue, operating profit, net profit decreased 1%, 36% y/y, and 29%, y/y, respectively.
Generic pharmaceutical companies are more affected by the drug price revisions than their branded counterparts. In addition, APIs are impacted by increases in the cost of oil and exchange rates.
The sustainability of the U.S. business rebound is still uncertain. We want to watch Sawai from sidelines and wait for full-year FY23 results, FY24 guidance, and NHI pricing decision.

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Dec 28

Daily Brief Japan: Bic Camera Inc, Ono Pharmaceutical, Pan Pacific International Holdings, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

Yodobashi to Become Top 10 Retailer in Sogo Seibu Deal with Fortress
Ono Pharmaceutical (4528 JP): Key Drugs On High Growth Trajectory; Pipeline Expands Beyond Opdivo
More Profit for Donki as It Expands Private Label, Even Freezers
Isn’t FSA Too Forward-Thinking to Keep up with the Global Trend in Human Capital Disclosure?

Yodobashi to Become Top 10 Retailer in Sogo Seibu Deal with Fortress

Although there are some points to iron out, Fortress Investment is in the final stages of negotiation to purchase Sogo Seibu from Seven & I, with Yodobashi Camera as partner.
This is an exciting move for Yodobashi as it should be an excellent choice to leverage Sogo Seibu’s better locations and create more competition for rivals like Bic Camera.
Even so, some stores will no longer have a future under their existing banners and the acquisition will mark the final demise of a 170 year old brand and company.

Ono Pharmaceutical (4528 JP): Key Drugs On High Growth Trajectory; Pipeline Expands Beyond Opdivo

Ono Pharmaceutical (4528 JP) is an innovation driven pharmaceutical company, with major focus on oncology. Opdivo, Forxiga, and Orencia are the top three products, together contributing ~75% of product revenue.
While the competition intensified, use of Opdivo for malignant tumors was expanded to first-line treatment for NSCLC, esophageal cancer, and gastric cancer, resulting in FY22 sales of ¥112.4B (+14% y/y).
Ono’s second largest drug Forxiga is also on a double-digit growth path. The company has been expanding its pipeline beyond Opdivo by reinforcement of in-house research and in-licensing activities.

More Profit for Donki as It Expands Private Label, Even Freezers

Pan Pacific International Holdings (7532 JP)’ Don Quijote stores rebounded strongly from Covid, despite the lack of inbound tourists, reflecting the hard work done to update stores and merchandise.
This innovation continues and Don Quijote stores recently even began offering several new private brand cosmetics ranges and new electronics, including a new small footprint freezer.
The company expects 15% of domestic sales from private brands alone but rising to 25% in the near term, with significant upside for operating profits.

Isn’t FSA Too Forward-Thinking to Keep up with the Global Trend in Human Capital Disclosure?

The government’s application of human capital disclosure starting with FY3/2023 companies runs the risk of omitting process of fully discussing and internalizing concept of human capital with company’s management strategy.
The government’s policy change to make disclosure of quarterly financial results voluntary in exchange for mandatory disclosure of human capital will likely lead to a setback in information disclosure.
Various issues will likely emerge in the future: whether the 3 indicators mandated for disclosure correctly reflect the company’s human capital approach and whether they can be compared among companies.

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Dec 27

Daily Brief Japan: Toyo Construction, Takashimaya, Lawson Inc and more

In today’s briefing:

Toyo Construction (1890) Investors/Traders Beware
Takashimaya and H2O Cancel Tie-Up
Green Lawson: More Eco and Avatars

Toyo Construction (1890) Investors/Traders Beware

By Travis Lundy

On 13 December, Toyo Construction (1890 JP) suitor YFO issued a press release which was not to the liking of Toyo Construction. A day later, Toyo Construction offered its own.
YFO responded on the 21st, saying ToyoKen’s PR was inaccurate. Not quite a week after that, ToyoKen announced one tiny subsidiary(Tecos) would absorb another (portable toilet rental co Orient Ecology).
Synergies? None. Growth? None. Scale? Nope. Was this for some other reason investors need to worry about? Maybe.

Takashimaya and H2O Cancel Tie-Up

Takashimaya and H2O Retailing entered what felt like a forced engagement of convenience in 2008 when all their other competitors were busy merging.
Although discussions for a full merger were held, in truth, thea agreement was more about practical collaboration to create more efficiencies.
With both firms now more secure and cross-shareholdings more problematic, they will sell off their equity in each other but continue to work on joint projects.

Green Lawson: More Eco and Avatars

Lawson introduced a new store format in Tokyo last month called Green Lawson, touting new ways to save energy and reduce waste.
The new store also features an early version of a retail advertising system that emulates Familymart Vision.
The latest updates emphasise the continued investment by the big three convenience stores to remain relevant and improve sales efficiency while also countering the labour shortage.

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Dec 26

Daily Brief Japan: Nippon Steel Trading Corporation, Software Service, Jafco Co Ltd, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

Merger Arb Mondays (26 Dec) – Nippon Steel Trading, Conexio, Origin Energy, Warrego, OZ Minerals
Software Service (3733 JP): High Order Book Indicates Continued Stellar Performance
Weekly Deals Digest (26 Dec) – JAFCO, Nippon Steel Trading, Conexio, Origin Energy, Warrego
Japanese Companies Will Be Selected as One of Global Stocks for Individual Investors in near Future

Merger Arb Mondays (26 Dec) – Nippon Steel Trading, Conexio, Origin Energy, Warrego, OZ Minerals

By Arun George

We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
Highest spreads – Genex Power Ltd (GNX AU), Alliance Aviation Services (AQZ AU), 21Vianet Group (VNET US), Nippon Steel Trading Corporation (9810 JP), Conexio Corp (9422 JP), Golden Energy.
Lowest spreads – Nitro Software Ltd (NTO AU), Shandong Fengxiang (9977 HK), Chip Eng Seng Corp (CHIP SP), Elmo Software (ELO AU), OZ Minerals Ltd (OZL AU), Norwest Energy.

Software Service (3733 JP): High Order Book Indicates Continued Stellar Performance

Software Service (3733 JP) reported in-line FY22 results, with revenue growing 9% to ¥27.6B, driven by 7–8% y/y growth in hardware and software businesses, which contributed ~70% of revenue.
The company ended FY22 with an order backlog of ¥8.7B, up 22% y/y, driven by a 26% y/y growth in hardware orders. In November, the company secured order worth ¥2.6B.
For FY23, Software Service has guided for revenue of ¥30.4 billion (+10% y/y), operating profit of ¥5.4 billion (+12% y/y), and ordinary profit of ¥5.5 billion (12% y/y).

Weekly Deals Digest (26 Dec) – JAFCO, Nippon Steel Trading, Conexio, Origin Energy, Warrego

By Arun George

A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
ECM developments – Very quiet week as VinFast (1905332D VN) continues to pre-market a US$1bn IPO.
Event-Driven developments Conexio Corp (9422 JP), Jafco Co Ltd (8595 JP), Nippon Steel Trading Corporation (9810 JP), Origin Energy (ORG AU), OZ Minerals Ltd (OZL AU), Warrego Energy (WGO AU).

Japanese Companies Will Be Selected as One of Global Stocks for Individual Investors in near Future