Japan

In today’s briefing:

Fast Retailing (9983) | Elevated Multiple and Guidance Risk
Women Founders Should Be Supported Rather than Goals that Are Less Feasible for Achieving Diversity

Fast Retailing (9983) | Elevated Multiple and Guidance Risk

By Mark Chadwick

Fast Retailing’s share price has risen 24% year-to-date, outperforming the index and global peers
The share price has been driven by multiple expansion, which we believe is now at risk of reversing
With an uncertain economic backdrop, we believe management may issue conservative guidance for the next fiscal year. We turn Bearish.

Women Founders Should Be Supported Rather than Goals that Are Less Feasible for Achieving Diversity

If we want to increase women directors even to growth market companies, we can solve this problem by extending the scope of this comply-or-explain requirement to growth market companies.
It is a fact that companies with top female executives have more women on their boards of directors. It’s required to create support to increase the number of women founders.
Rather than setting targets for the ratio of female managers, which are vague and unworkable, a framework should be created to support female founders.

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Sep 24

Daily Brief Japan: Softbank Group, Tokyo Stock Exchange Tokyo Price Index Topix, Hamamatsu Photonics Kk and more

In today’s briefing:

Softbank – So The Arm IPO Isn’t Looking All That Hot Then?
Shareholder Returns Offered by Companies that Do Not Meet Prime Market Listing Criteria Are…..
Hamamatsu Photonics (6965 JP): Difficult Year Ahead

Softbank – So The Arm IPO Isn’t Looking All That Hot Then?

By Mio Kato

Apparently prospects for a high valuation on a potential Arm IPO are so staggeringly, AI-rifically good that Masayoshi Son is now sounding out Samsung on a strategic partnership.
Samsung itself has not been having the greatest time of late with Micron and SK Hynix making serious inroads against its prior technological leadership in memory.
So as desperate and desperate-er ponder an alliance we can only be thoroughly convinced that this move absolutely, positively has nooooothing to do with trying to prop up share prices.

Shareholder Returns Offered by Companies that Do Not Meet Prime Market Listing Criteria Are…..

The current criteria of 10 billion-yen in tradable market capitalization is too small by definition of prime market, “market-cap suitable for institutional investors,” and should be reviewed in near future.
It’s natural that there will be difference in the stock prices of companies that can show results that are in line with their disclosed plans and those that are not.
Simply raising shareholder returns won’t, in theory, positively impact on stock price. Mere increased shareholder returns would be seen as sign that the company reached the end of its rope.

Hamamatsu Photonics (6965 JP): Difficult Year Ahead

By Scott Foster

FY Sep-22 results are likely to beat management’s guidance, but this should be in the price. Recession and rising interest rates are probably not in the price.
Growth rates slowed in 3Q and are likely to decline further in 4Q. In the year ahead, we expect both sales and profits to decline.
The shares have rebounded by 21% since the 1st of July to 30x our EPS estimate for FY Sep-23. This does not look sustainable. Sell into current strength.

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Sep 22

Daily Brief Japan: Central Glass, Chubu Steel Plate, Softbank Group and more

In today’s briefing:

Central Glass (4044 JP) – Huge Buyback Tender, Meant For Murakami-San’s Exit, Not Yours
Chubu Steel Plate (5461) – Unusual TOPIX Inclusion Possibility
Softbank Group – A Surplus of VC Cash Could Re-Energize Vision Fund’s Investment Pace

Central Glass (4044 JP) – Huge Buyback Tender, Meant For Murakami-San’s Exit, Not Yours

Activist Murakami-san and entities spent 4+ years going from 2% to 30% of Central Glass (4044 JP). In that period, they helped management change governance.
There were buybacks, asset sales, cross-holding sale decisions, and a new Mid-Term Management Plan. The stock went up, so now it is time to get out.
True to Murakami-san style/form, it is an own-share Tender Offer by the TargetCo which means most other active holders can’t really participate. It’s high-quality greenmailgagement.

Chubu Steel Plate (5461) – Unusual TOPIX Inclusion Possibility

Today, Nagoya Premier-listed Chubu Steel Plate (5461 JP) announced that it had applied today to be listed in Tokyo.
It is one of very few Japan names not listed in Tokyo. A TSE listing examination will be conducted, and there is a possibility it moves to TSE Prime.
There are 6 key segment transfer and listing requirements to gain a listing in TSE Prime. Chubu Steel Plate is really close.

Softbank Group – A Surplus of VC Cash Could Re-Energize Vision Fund’s Investment Pace

By Kirk Boodry

News reports indicate venture capital firms are sitting in cash reserves 2x normal levels and that needs to be put to work
We expected a narrowing of public v private valuation levels was needed for Softbank to pivot from recent defensive but competition for deals may be more relevant
Access to investment capital is easier after settling of Alibaba-linked derivative contracts and Softbank has showed as recently as 2020 asset sales that it can lever up quickly

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Sep 21

Daily Brief Japan: Raysum Co Ltd, Nexon, Socionext, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

Raysum (8890 JP) Mystery Bidder Is a Hedge Fund – And That Makes It More Interesting
Nexon (3659) | The Best Pipeline Ever
Socionext Pre-IPO Peer Comparison – Margins Have Been Weaker than Peers, but Gap Has Been Closing
Effective Share-Buyback Require Proven Track Record and Communication to Gain Investor Understanding

Raysum (8890 JP) Mystery Bidder Is a Hedge Fund – And That Makes It More Interesting

Raysum Co Ltd (8890 JP) has been in a weird kind of limbo for well over a year. The Chairman/Founder resigned late last year for health reasons.
The company needed to take action to stay listed on TSE Standard. There was a plan to transfer 60+% of the shares to a foundation, through an odd arrangement.
Then a hedge fund stepped up and said “I’ll have 64% of the company at a near life-time high.” So now we have an interesting deal. And interesting potential future.

Nexon (3659) | The Best Pipeline Ever

By Mark Chadwick

Nexon’s stock price is down -20% from the highs made in April and -30% from its highs last year.
Nexon is a key beneficiary of the trend to immersive virtual worlds and live game operations
The best pipeline in Nexon’s history will drive higher Free Cash Flows and shareholder returns

Socionext Pre-IPO Peer Comparison – Margins Have Been Weaker than Peers, but Gap Has Been Closing

By Clarence Chu

Socionext (6526 JP) is looking to raise up to US$285m in its Japan IPO.
Socionext is a fabless semiconductor provider which commenced operations after integrating the system on a chip (SoC) businesses of Fujitsu Semiconductor Limited and Panasonic Holding Corporation.
In this note, we undertake a peer comparison with its international peers, which have a similar fabless business model-type to that of Socionext’s

Effective Share-Buyback Require Proven Track Record and Communication to Gain Investor Understanding

In my previous analysis, I found that firms with high frequency of share repurchase cancellations increased their market capitalization during the relevant period (12/2021-1/2022).
Even though the short-term share price performances of companies that announced share repurchases were mixed, the share prices of companies with track record of several share repurchases have risen.
It takes certain amount of time for investors to understand the track record and the capital allocation policy is consistent with the goal of increasing corporate value over the-long run.

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Sep 20

Daily Brief Japan: Toshiba Corp, Seven & I Holdings and more

In today’s briefing:

Toshiba (6502 JP) Getting Closer to Crunch Time So Ongoing News “Leaks” Likely
Toshiba – Japan Industrial Partners The Only Real Bid?
Seven & I: Going Strong in Overseas, Another Beat On the Cards

Toshiba (6502 JP) Getting Closer to Crunch Time So Ongoing News “Leaks” Likely

Three interviews and comments by Senior Toshiba Boardmembers (chairperson and head of Special Committee) and the CEO prep the ground for a full company deal, or no deal.
If no deal, there’s downside to the 5yr average Toshiba/Peers ratio. If you see 50% deal probability, at mid ¥6000s or better, IRRs are OK. But there is jump risk.
I don’t see the activists just deciding to bail en masse if no deal. I think they take it further, which means I think the Board wants a deal.

Toshiba – Japan Industrial Partners The Only Real Bid?

By Mio Kato

Since the second of Jun Toshiba is down 14.7% while TOPIX is up 0.7%.
This underperformance against TOPIX and industry peers suggests that some of the implied acquisition premium has dissipated.
With reasonable potential for some form of bid coming through we consider the news about Japan Industrial Partners growing its consortium.

Seven & I: Going Strong in Overseas, Another Beat On the Cards

By Oshadhi Kumarasiri

After raising guidance yet again in 1QFY23 through stronger than expected performance in the overseas business, Seven & I is scheduled to release Q2 results on 6th October 2022.
We are optimistic that 2QFY23 could provide the platform for Seven & I to break the ¥6,100 level, at which the share-price has been stuck for the first 9-months 2022.
This is because, we are seeing a significant improvement in Seven & I’s domestic performance while, North America is carrying the growth momentum that been there since the Speedway-acquisition.

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Sep 18

Daily Brief Japan: Rakuten Inc, Itochu Corp, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

Rakuten’s Netsuper Expands with New Partners
Itochu Grabs Eddie Bauer and Barbour
The Issue of Board Diversity Is Being Asked Anew

Rakuten’s Netsuper Expands with New Partners

By Michael Causton

The battle for online food sales continues to heat up, with Rakuten and Amazon squaring up to challenge for supremacy.
Although Amazon has signed two of the largest names, Life and Valor, Rakuten is quickly catching up, last month adding Comodi-Iida to existing members, Seiyu, Beisia and Inageya.
Other supermarket chains are already preparing to sign-up with Rakuten.

Itochu Grabs Eddie Bauer and Barbour

By Michael Causton

A few years back, Itochu Corp (8001 JP) announced its intention to aggressively grow its consumer brand business.
It has just confirmed deals with Eddie Bauer and Barbour after a year in which it also signed Reebok and Under Armour.
Although a small part of the Itochu empire, the consumer brand business, alongside retail interests such as Familymart, are key to the trading firm’s longer term profits.

The Issue of Board Diversity Is Being Asked Anew

The adoption of female directors is growing as Japanese investment managers follow the movement among overseas investment managers to oppose proposals for election of directors for companies without female directors.
In Japanese companies, where peer pressure is strong, it is doubtful that the opinions of about 10% female directors can be fully reflected in the discussions and conclusions.
Non-Japanese directors who don’t succumb to Japan’s culture of peer pressure is even smaller, and Japanese companies will be at risk if they determine management strategy without diverse values.

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Sep 17

Daily Brief Japan: Hitachi Metals, Istyle Inc and more

In today’s briefing:

Hitachi Metals (5486) Gets SAMR Clearance, Finally. So Now We Can Sell.
IStyle’s @Cosme Gets a Boost from Amazon Investment

Hitachi Metals (5486) Gets SAMR Clearance, Finally. So Now We Can Sell.

Today before the open, China’s State Administration for Market Regulation (SAMR) finally announced the approval of the takeover of Hitachi Metals (5486 JP). This was what delayed things.
The approval had actually been issued on 7 September, and the collected approvals in the week to the 12th were announced today. Some media outlets had the info yesterday.
I expect it is likely that the Bain Tender Offer to buy Hitachi Metals will be announced today after the close, or at latest, early next week.

IStyle’s @Cosme Gets a Boost from Amazon Investment

By Michael Causton

Japan’s cosmetics market is the focus of attention from many large international businesses thanks to strong sales and new growth businesses.
The latest is Amazon, which is to become the biggest shareholder in Istyle Inc (3660 JP), providing a major boost to the @Cosme operator.
IStyle, meanwhile, plans to offer cosmetics brands the chance to open popup stores within its retail chain for fixed monthly fees.

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Sep 16

Daily Brief Japan: Aruhi Corp, Softbank Group, Premier Anti-Aging, Tokyo Stock Exchange Tokyo Price Index Topix, Askul Corp and more

In today’s briefing:

SBI (8473) Buys Back Into ARUHI (7198) In Partial Tender Offer
Softbank Group – An Acceleration in Investment Does Not Require a Third Vision Fund
Premier Anti-Aging: DUO’s Time Is Done, But CANADEL & Clayence Is Taking the Company Forward
Mismatch Between Documents Needed by Foreign Investors and Those Translated in English by Companies
Askul Q1 23 Results Reaction: Solid Revenue but OP Down on Front-Loaded Investments

SBI (8473) Buys Back Into ARUHI (7198) In Partial Tender Offer

Yesterday, SBI Holdings (8473 JP) announced it would launch a tender offer to buy 33.4-51% of Aruhi Corp (7198 JP) at ¥1,500/share – a 48.5% premium to the close.
ARUHI – Japan’s largest “mortgage bank” – was listed in late 2017. Long ago, its predecessor was named SBI Mortgage. This is SBI buying back in.
Inside we look at valuations, shareholder structure, pro-ration. There are opportunities here.

Softbank Group – An Acceleration in Investment Does Not Require a Third Vision Fund

By Kirk Boodry

Press reports indicate Softbank Group (9984 JP) is considering a third Vision Fund which seems to conflict with its more defensive posture at Q1 results last month
Softbank can re-accelerate investment at any time without VF3 so talk of a new fund is not a signal change. Perceptions of private equity value are more important
And a key message over the last six months is founders are too optimistic and that seems unlikely to shift suddenly. We have updated our SB performance tables below

Premier Anti-Aging: DUO’s Time Is Done, But CANADEL & Clayence Is Taking the Company Forward

By Oshadhi Kumarasiri

Japan’s number one skin cleansing balm, DUO seems to be in big trouble with monthly sales volume falling by almost 40% over the last 12 months.
However, Premier Anti-Aging (4934 JP) is making progress with the development of other brands to reduce its dependence on DUO.
Despite the depressed margins in the near-term, we are quite positive about Premier Anti-Aging’s medium-long term outlook with new brands like CANADEL and clayance showing promising signs for the future.

Mismatch Between Documents Needed by Foreign Investors and Those Translated in English by Companies

While 90% of the companies listed on the prime market translate some documents into English, very few companies listed on other markets translate their disclosure documents into English.
There is a mismatch between the documents that prime market listed companies translate into English and the documents that overseas institutional investors require to be translated into English.
Few companies with high foreign ownerships have translated their annual securities reports, convocation notices (business reports) and corporate governance reports into English, which overseas investors need to translate into English.

Askul Q1 23 Results Reaction: Solid Revenue but OP Down on Front-Loaded Investments

By Kirk Boodry

Askul Corp (2678 JP) posted the best revenue growth in six quarters as both B2B and consumer product sales accelerated
The corresponding operating income decline of 10% is less welcome but that includes a front-loading of planned growth investments and full year guidance of 1% growth is unchanged
We are tagging this insight as bearish as headlines of a 10% OP decline might not be as well received as the top-line story

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Sep 15

Daily Brief Japan: NTT (Nippon Telegraph & Telephone) and more

In today’s briefing:

NTT (9432) Buyback Has Come – But NTT Is Gonna Grind Out Better EPS So I’d Keep It

NTT (9432) Buyback Has Come – But NTT Is Gonna Grind Out Better EPS So I’d Keep It

NTT announced a buyback in May as discussed in NTT (9432) – Salutary Earnings Salutary Buyback, More to Go, via ToSTNeT-3 to buy a chunk of the govt’s stake.
That will be executed by ToSTNeT-3 buyback pre-open tomorrow, with a bid of 103.1725mm shares at ¥3,877. A separate report suggests the Ministry of Finance will sell 92mm shares.
It is like a mini tender offer so if you want to sell a large chunk of shares, you can. But I wouldn’t.

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Sep 14

Daily Brief Japan: Canon Inc, Socionext, Shiseido Company, NEC Corp, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

Canon Buyback Done, Ricoh’s Done Shortly, Back To Your Regularly Scheduled Program
Socionext Pre-IPO – Could Expect a Further Bump in Profitability, Although Some Hidden Risks Remain
Shiseido: Drunk Elephant Seems an $845m Write-Off
NEC (6701) | Even Higher Conviction
It Is Hoped that the Content of Shareholder Meetings Will Be Enhanced in the Future

Canon Buyback Done, Ricoh’s Done Shortly, Back To Your Regularly Scheduled Program

Canon Inc (7751 JP) has announced two buyback programs this year of ¥50bn each. Ricoh Company Ltd (7752 JP) announced one in May for ¥30bn.
The result is 2.9% bought back vs 4.4%. The accretion nod goes to Ricoh. But so does the overhang nod going forward. Effissimo+Crossholders is 40% for Ricoh. Mid20s for Canon.
Buyback impact-related trade timing has worked for Canon. Ricoh’s buyback ends imminently. There may be a trade to do here.

Socionext Pre-IPO – Could Expect a Further Bump in Profitability, Although Some Hidden Risks Remain

By Clarence Chu

Socionext (6526 JP) is looking to raise up to US$285m in its Japan IPO.
Socionext is a fabless semiconductor provider in Japan. Sales and profitability has been on an overall uptrend, and design wins in earlier fiscal years should materialize in the coming periods.
However, the firm has generated a substantial portion of revenue from a related party and is reliant on a particular foundry for its front-end manufacturing.

Shiseido: Drunk Elephant Seems an $845m Write-Off

By Oshadhi Kumarasiri

Shiseido’s acquisition of Drunk Elephant for a valuation of $845m was perceived positively, hoping that Shiseido could use Drunk Elephant’s digital marketing expertise to restructure its North America business.
Rather than emulating Drunk Elephant like digital marketing to the company’s other brands, Shiseido has been trying to accommodate all its brands including Drunk Elephant into a hybrid marketing strategy.
This seems to have killed Drunk Elephant’s appeal to its customers. Thus, Shiseido Company (4911 JP) could be facing a massive $845m write-off over the next few years.

NEC (6701) | Even Higher Conviction

By Mark Chadwick

NEC’s buyback announcement sends a clear message that the MTP is on track and management feel the stock is undervalued
The recent IR DAY increased our conviction in the financial model. We were impressed with the improving pipeline of Open RAN customers
The stock is significantly undervalued, trading below book value, with improving ROE

It Is Hoped that the Content of Shareholder Meetings Will Be Enhanced in the Future