Japan

In today’s briefing:

SHiDAX Board-Oisix-Shida Family Scrap
Mitsubishi Motors (7211) | Take Your Foot off the Gas
PPIH – Inbound Demand & Personal Brands Growth Could Propel The Share Price Above ¥4,000
After Developing Guidelines for ESG Investing, the Challenge Is How to Reflect Them in Performance

SHiDAX Board-Oisix-Shida Family Scrap

Shidax Corp (4837 JP) is under offer for a partial tender by Oisix ra daichi (3182 JP). Unison Capital is expected to tender their shares.
Unison may not want to go against the board but a direct transfer (i.e. not tender offer) is still possible.
Some Independent Board Members have suggested the company buy Unison’s shares back. This might work BUT the end game is still the same.

Mitsubishi Motors (7211) | Take Your Foot off the Gas

The stock price of Mitsubishi Motors has been driven by exposure to the weak Japanese yen and the sharp recovery in ASEAN auto sales
The valuation at 1x book is now at a premium versus the sector and its historical average
We believe that the 2H could be an uphill battle against rising petrol prices and weakening consumer confidence in the core markets

PPIH – Inbound Demand & Personal Brands Growth Could Propel The Share Price Above ¥4,000

After beating the Q4 consensus OP by more than 26%, Pan Pacific International Holdings (7532 JP)’s share price has bounced back towards the mid-point of its long-term trend channel.
With inbound demand set to return to further boost PPIH’s profitability, we are expecting additional upside to consensus FY23 OP, which is based on conservative company guidance.
Based on the FY+1 consensus OP to share price trend, our annual run-rate OP estimate of ¥160bn suggests that there could be an additional 50% upside to Pan Pacific International.

After Developing Guidelines for ESG Investing, the Challenge Is How to Reflect Them in Performance

The reason for this criticism is that the performance of mutual funds with ESG investing in their names have not differed from or underperformed stock market indices.
The FSA report indicates that some investment management companies that manage mutual funds with ESG names do not have sufficient specialized ESG departments and professionals.
Nissay Asset Management’s guidelines seem reasonable. How to reflect them in investment performance in the future is a very difficult and key issue.

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Sep 12

Daily Brief Japan: Nikon Corp and more

In today’s briefing:

Nikon (7731) | Snapping up a 3D Printing World Leader

Nikon (7731) | Snapping up a 3D Printing World Leader

We believe the market may have missed the important acquisition of 3D printing firm, SLM Solutions
The 3D printing market is expected to grow rapidly driven by industrial applications that require accurate products and rapid time to market
We believe the acquisition is a good fit for Nikon and that the realization of synergies could see SLM making a meaningful profit contribution

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Sep 11

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

In today’s briefing:

It Is Crucial that Corporate Governance Practices that Are Formally in Place Actually Function

It Is Crucial that Corporate Governance Practices that Are Formally in Place Actually Function

The reason why TCFD’s progress is the slowest is that prudent companies are still exploring the minimum line that should be taken by other companies to see how they’re responding.
The lack of specific numerical targets for ensuring diversity, which are not explicitly stated in the Corporate Governance Code, is the main reason for the slow progress.
While some formal progress has been made, such as the establishment of nominating/compensation committees, there are many challenges ahead. Scandals have occurred even in companies that have implemented formal standards.

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Sep 09

Daily Brief Japan: Shidax Corp, TORIDOLL Holdings Corporation, Honda Motor, Josys, oVice and more

In today’s briefing:

Oisix-Shida Stoush with SHiDAX Suggests Strong but Subtle Strategy
Toridoll – Bull Run Can Stretch Much Longer
Honda Sets Up New Venture to Procure Batteries From CATL
Japan’s Corporate IT Operations Firm JOSYS Nets US$32M Funding, to Expand to Singapore
Japanese Virtual Office Platform Raises $32m for Market Expansion

Oisix-Shida Stoush with SHiDAX Suggests Strong but Subtle Strategy

Shidax Corp (4837 JP) is a food service business in the midst of a so-far reasonably successful restructuring. The family had a partner in Unison and hoped to extend.
The founding family and Unison now have ~60% together, and they vote together. Unison wants out. The family wants Oisix ra daichi (3182 JP) in. So Oisix has tendered.
But SHiDAX sees the conflict and minorities getting hosed. So they object. The “easy” solution is a full MBO with Oisix support.

Toridoll – Bull Run Can Stretch Much Longer

TORIDOLL Holdings Corporation (3397 JP) is trading near the historical peak of ¥3,000 per share which translates to a consensus FY+2 EV/OP of 30.9x.
We think the stock has more room to run as its OP margin is expected to reach double digits for the first time since FY13.
Meanwhile, there could be an upside to FY23 guidance as it is currently based on an exchange rate of ¥116 per $1.0.

Honda Sets Up New Venture to Procure Batteries From CATL

By Caixin Global

Honda Motor Co. Ltd.’s Chinese unit will set up a new joint venture with two Chinese partners to procure electric vehicle batteries from battery giant Contemporary Amperex Technology Co. Ltd. (CATL)
The joint venture will be 50% owned by Honda Motor (China) Investment Co. Ltd. and 25% each by Dongfeng Motor Corp. Ltd. and Guangzhou Automobile Group Co. Ltd. (GAC)
Honda’s joint ventures with Dongfeng and Guangzhou Automobile already use CATL batteries in electric cars made in China

Japan’s Corporate IT Operations Firm JOSYS Nets US$32M Funding, to Expand to Singapore

By e27

JOSYS is a B2B platform that streamlines corporate IT operations through automated management of IT devices and SaaS applications
JOSYS, a Japanese company offering a B2B SaaS platform for corporate IT operations, has raised US$32 million in a funding round led by Global Brain Corporation
With this money, JOSYS — a spin-off of the Tokyo Stock Exchange-listed RAKSUL — plans to strengthen its development wing in India and sales structure in Japan

Japanese Virtual Office Platform Raises $32m for Market Expansion

By Tech in Asia

Japan-based virtual office platform oVice has secured US$32 million in series B funding from an unspecified group of local and overseas investors.
Launched in 2020, oVice’s software provides customizable virtual offices, classrooms, and event venues for companies disrupted by the pandemic.
Currently, the firm has reported over US$6 million in annual recurring revenue and said it has long-term contracts with over 2,200 organizations.

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Sep 08

Daily Brief Japan: Hitachi Transport System, SG Holdings, JMDC Inc, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

Hitachi Transport (9086 JP) – Tender Launch Likely Soon But Watch for Flow
SG Holdings Placement – Had Suffered from Weak Price Momentum, Buyback Should Support Share Price
JMDC Offering – Smaller Than It Looks
Investment Managers Should Seek Ways to Reflect ESG Investing in Their Investment Performance

Hitachi Transport (9086 JP) – Tender Launch Likely Soon But Watch for Flow

Hitachi Transport System (9086 JP) has had a “long” wait to get its approvals, but EC and China are in, any remaining should be in shortly.
Yesterday, as a footnote on the SG Holdings offering document, there was a comment about SG Holdings selling shares. This was likely more good corporate governance hygiene than warning.
Shares are down this morning. I’d expect final approvals and launch quite soon. I would therefore look to buy the dip on flow – block or not.

SG Holdings Placement – Had Suffered from Weak Price Momentum, Buyback Should Support Share Price

By Clarence Chu

MUFG Bank and Sumitomo Mitsui Banking Corp are looking to raise a combined US$210m from trimming their respective stakes in SG Holdings (9143 JP).
While representing 16 days of three month ADV, comprising only 10.1m shares, 1.57% of the firm’s current market cap, the deal is a small one on an absolute basis.
In this note, we will talk about the placement and run the deal through our ECM framework.

JMDC Offering – Smaller Than It Looks

In February 2022, Noritsu Koki (7744 JP) – longtime holder of JMDC Inc (4483 JP) – sold 2/3 of its holdings to Omron (6645). Omron made a US$1bn new bet.
Shares fell after Q1 results, and then fell another 7% in 2 days after the company announced a primary offering for ¥22bn to international investors, ¥11bn to Omron.
High PER but Fundamental Forecasts are up-and-to-the-right, and there is a surprising amount of flow mitigation from passive investor activity the next 3 months.

Investment Managers Should Seek Ways to Reflect ESG Investing in Their Investment Performance

The lackluster ESG investing trust performance is the main reason for the sharp decline in new setups, as retail investors tend to trade short term.
The fact that Japanese companies aren’t leading the world in green practices and are reluctant to disclose their activities are the factors that prevent wash from occurring and being detected.
While it’s difficult to evaluate ESG investing in short-term-performance, it’s important to pay attention to how management is taking measures to increase corporate value in ESG perspective in particular G.

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Sep 07

Daily Brief Japan: JMDC Inc, Oriental Land, Kansai Electric Power, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

JMDC Placement – Lots to like but past Deals Have Been Mixed and It Is Expensive
Nikkei 225 March 2023 Review Quiddity Leaderboard
Kansai Electric | Growing Support for Nuclear Restarts; Bullish
Director Compensation Should Be Changed from Stable Compensation to More Variable Compensation

JMDC Placement – Lots to like but past Deals Have Been Mixed and It Is Expensive

By Sumeet Singh

JMDC Inc (4483 JP) aims to raise around US$235m, US$150m coming via an international offering and the rest via issuing shares to its largest shareholder, Omron Corp (6645 JP) .
The company plans to use the proceeds to repay some of its debt that was taken on earlier to acquire other companies.
In this note, we will talk about the placement and run the deal through our ECM framework.

Nikkei 225 March 2023 Review Quiddity Leaderboard

The Sep 2022 Nikkei 225 Annual Review has been announced. This was discussed in Nikkei 225 Review Results: Nidec, SMC, Hoya IN.
That means we can make early predictions for the March 2023 rebalance to be announced in six months. One way turnover would be about 1.4%.
The top three adds are Oriental Land, Renesas, and JAL. The top 3 sells would be Toyobo, Toho Zinc, and Nippon Sheet Glass. There are some dark horses here too.

Kansai Electric | Growing Support for Nuclear Restarts; Bullish

We believe KEPCO is well-positioned within the utility sector to benefit from growing support for nuclear restarts among policy makers and the general public
Given its substantial nuclear power generating capacity, KEPCO will likely see best-in-class balance sheet and cash flow-generation over the next several years.
This puts KEPCO well ahead of peers in terms of both environmental credentials and attractive shareholder returns.

Director Compensation Should Be Changed from Stable Compensation to More Variable Compensation

The reason for high remuneration of foreign directors isn’t only that remuneration is determined based on overseas compensation levels, but also that fixed remuneration for directors in Japan is high.
It is hoped that more companies will increase the proportion of variable compensation, and that for shareholders, performance will increase enough to significantly increase variable compensation.
In order for directors to fulfill their responsibilities in determining important strategies, the system must be designed to be high-risk and high-return as well as individually disclosed.

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Sep 06

Daily Brief Japan: SMC Corp, Nidec Corp, Fast Retailing and more

In today’s briefing:

Nikkei 225 Index Rebalance: Mostly on Expected Lines
Nikkei 225 Review Results: Nidec, SMC, Hoya IN
Fast Retailing – Downside Risk Mounts as Xinjiang Cotton Controversy Takes Centre Stage Yet Again

Nikkei 225 Index Rebalance: Mostly on Expected Lines

By Brian Freitas

The Nikkei 225 (NKY INDEX) September rebalance will be done in three parts due to the delisting of Shizuoka Bank (8355 JP) and the relisting of Shizuoka Financial Group (5831).
Nidec Corp (6594 JP), SMC Corp (6273 JP) and Hoya Corp (7741 JP) replace Unitika Ltd (3103 JP), Oki Electric Industry (6703 JP) and Maruha Nichiro (1333 JP).
Passive trackers need to buy over 10 days ADV on the adds and there is a large impact of the funding trade given the add/delete size difference.

Nikkei 225 Review Results: Nidec, SMC, Hoya IN

The Nikkei Index Team announced the Nikkei 225 Annual Review today, days earlier than I expected. Nidec Corp (6594 JP), SMC Corp (6273 JP), Hoya Corp (7741 JP) are IN.
Unitika Ltd (3103 JP), Maruha Nichiro (1333 JP), and Oki Electric Industry (6703 JP) are OUT. They did not go for my subjective choices to improve sector balance. Next time.
The inclusion/exclusion events are staggered over 3 days out of four because of the deletion and re-inclusion of Shizuoka Bank (8355 JP) due to its formation of a holding company.

Fast Retailing – Downside Risk Mounts as Xinjiang Cotton Controversy Takes Centre Stage Yet Again

Last week, The UNHR Office published a carefully worded report saying that the actions of the Chinese Government in Xinjiang “may constitute international crimes, in particular, crimes against humanity”.
Meanwhile, apparel brands in the US seem to be exploiting loopholes in the Uygur Forced Labour Prevention Act with Xinjiang’s clothing exports rising to a 2-year high in July 2022.
With pressure mounting on US customs to increase oversight, Fast Retailing (9983 JP)’s newest growth pillar (the US) could be about to meet major setbacks in the near term.

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Sep 05

Daily Brief Japan: Kyocera Corp, Seiko Epson, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

Kyocera (6971 JP): Strong Performance Unlikely to Last
Seiko Epson (6724) | Home Printing Running Out of Ink
A Policy Shift from Simply Maintaining Corporate Performance to How to Raise Added Value Is Needed

Kyocera (6971 JP): Strong Performance Unlikely to Last

By Scott Foster

It is hard to see how Kyocera can avoid a significant slowdown in sales and earnings growth given the weakness in electronics markets and the overall economy.
R&D and capital spending continue to rise, putting pressure on margins and offsetting gains from the weak yen.
Valuations are not compelling. Watch out as the share price drops back from its recent high.

Seiko Epson (6724) | Home Printing Running Out of Ink

Seiko Epson has been one of the better performing tech stocks during 2022
We believe that the stock benefited from COVID-related stay-at-home demand for printers
We now turn Bearish as the Covid boost should dissipate, while the PC market has taken a turn for the worse

A Policy Shift from Simply Maintaining Corporate Performance to How to Raise Added Value Is Needed

OP margins for listed companies haven’t increased notably, with maximum of 5% since FY 2008. Meanwhile, real income has continued declining, and there has been trend to reduce labor costs.
The negative aspect is illustrated by the low level of employee engagement in a company that has managed to maintain operating margin at current level by keeping labor costs low.
Inadequate investment by both companies and employees has hindered the expansion of value-added. For expanding added value, shift to investment in human resources is needed along with wage increases.

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Sep 03

Daily Brief Japan: Softbank Group, Mitsubishi Heavy Industries, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

Softbank Group – ARM Suing a Key Customer Is Not the Summer News We Expected
Mitsubishi Heavy Industries (7011) | Green Transition Bonds
Should Move to a Legally Binding Structure to Prevent Corporate Governance from Becoming a Skeleton

Softbank Group – ARM Suing a Key Customer Is Not the Summer News We Expected

By Kirk Boodry

ARM is suing Qualcomm for breach of license and trademark infringement for its acquisition of (fellow ARM licensee) Nuvia last year
This is surprising on a number of levels as having Qualcomm inside the tent is better for sales, market share and its neutral-player reputation
ARM’s valuation benefits from perceptions of an expanding addressable market so this is not a good look. Meanwhile, Softbank’s discount to NAV is widening again as tech valuations fall

Mitsubishi Heavy Industries (7011) | Green Transition Bonds

MHI has a roadmap for becoming carbon neutral by 2040. The transition to a decarbonized society will be funded by green/transition bonds
MHI has issued its first green/transition bond amounting to 10 billion yen
We remain bullish on MHI and believe it is a key beneficiary of decarbonization trends in Japan

Should Move to a Legally Binding Structure to Prevent Corporate Governance from Becoming a Skeleton

Cases of illegal transactions by the president of a company from the founding family should be handled in terms of legal violations before corporate governance.
If we focus on the issue of corporate governance, the problem is that the board of directors and statutory auditors have failed to fulfill their duties and cross-shareholdings were involved.
If corporate governance is not effective in practice, we should at least expect to see improvements in corporate governance practices in organizational forms that are more legally binding.

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Sep 02

Daily Brief Japan: Sekisui House, Kadokawa Dwango, Raccoon Holdings, Inc. and more

In today’s briefing:

Sep22 FTSE EPRA Nareit Index Rebalance – Big Impact on Sekisui House (1928 JP)
Kadokawa – Investments From Sony and Tencent
Raccoon: Maintaining COVID Momentum

Sep22 FTSE EPRA Nareit Index Rebalance – Big Impact on Sekisui House (1928 JP)

Yesterday FTSE Russell announced two Asian additions to its FTSE EPRA Nareit Global Developed Index – Sekisui House (1928 JP) and Healthcare & Medical Investment Corporation (3455 JP).
Sekisui House is larger cap, and will see big dollars added. H&M IC is much smaller and will see less, but has had a huge run-up, outright and relative.
Trading impact will be significant on both tickers in terms of days of ADV.

Kadokawa – Investments From Sony and Tencent

By Mio Kato

Kadokawa announced yesterday that subsidiary From Software would conduct a third-party allocation of shares to Sony and Tencent.
The allotment values From Software at about ¥120bn with Tencent acquiring 16.25% and Sony acquiring 14.09% of the company.
This creates opportunities for both Sony and Tencent and likely puts Kadokawa on track to eventually be acquired though timing may be somewhat later than we had anticipated.

Raccoon: Maintaining COVID Momentum