Japan

In today’s briefing:

Last Leg of TOPIX and JPNK400 FFW Rebal – ¥780bn One-Way Flow Wednesday
FTSE GEIS Sep 2022 Index Rebalance Preview: Japan
Mitsubishi Heavy Industries (7011) | Three Reasons to BUY
Seven & I Marches On in the US Despite Headwinds From Inflation
Listing a Subsidiary May Tell Market that the Parent Company Isn’t Confident in Generating Cash Flow

Last Leg of TOPIX and JPNK400 FFW Rebal – ¥780bn One-Way Flow Wednesday

The last of the three-leg rebalance for TOPIX and JPNK400 index weights takes place Wednesday 29 June at the close. This one is a bit larger than expected in April.
There were a large number of cancellations of shares by TSE Prime members in May which ups the predicted value to be traded.
Interestingly, because lots of names have seen share cancellations and FFW drops, the average passive ownership of TSE Float (not other providers’ float) has gone up significantly through this process.

FTSE GEIS Sep 2022 Index Rebalance Preview: Japan

By Brian Freitas

The FTSE Russell September 2022 SAIR will use closing prices from 30 June to calculate the market cap cut-offs to determine the inclusions and exclusions for the All-World/All-Cap indices.
We see 1 add for the All-World Index and 5 for the All-Cap Index. We see 3 stocks moving from All-Cap to All-World and 5 stocks moving the other way.
There are other stocks that are close adds, upweights, downweights and deletes and price moves over the next few days will determine their status.

Mitsubishi Heavy Industries (7011) | Three Reasons to BUY

By Mark Chadwick

The recent correction in the share price offers a good chance for long-term bulls to get into the stock
MHI is the core play on Japan’s energy security given its portfolio of gas and nuclear power plant assets
The unseasonably HOT weather and potential power cuts, at the same time as soaring energy costs, could be the catalyst for the government to push for nuclear restarts

Seven & I Marches On in the US Despite Headwinds From Inflation

By Oshadhi Kumarasiri

Seven & I Holdings (3382 JP) should breeze through its rather unchallenging expectations when it releases its first-quarter results next week.
The company has raised its previous guidance multiple times last year and we expect a similar pattern in the first half next year with 7-Eleven US continuing to exceed expectations.
Thus, we would buy Seven & I Holdings leading up to earnings expecting a decent upside on rising guidance.

Listing a Subsidiary May Tell Market that the Parent Company Isn’t Confident in Generating Cash Flow

On June 1, the Nikkei Shimbun carried an article titled “Parent-subsidiary listing, investors cynical about ‘governance barrier'”. I would like to discuss the issues in the article.
The dissolution of parent-subsidiary listings has accelerated, with approximately 20% of parent-subsidiary listings having been dissolved for 2 years. On the other hand, plans for new subsidiary listings are underway.
Rakuten and Panasonic are telling the market that they are not very good at generating cash flow. Not coincidentally, the stock prices of these companies are suffering from underperformance.

Before it’s here, it’s on Smartkarma

Jun 27

Japan: NTT (Nippon Telegraph & Telephone), Nidec Corp, J Front Retailing, Tokyo Stock Exchange Tokyo Price Index Topix, Z Holdings, Money Forward and more

In today’s briefing:

TOPIX Rebalance: Flows at the Close on 29 June
Nidec (6594 JP): Reconsider Strategy & Management
Subscriptions Provide Growth Model for J Front’s Daimaru-Matsuzakaya
“Global ESG Funds Invest Less in Japanese Equities.” Why Is This?
Z Holdings (4689) | An Online Goldmine
Money Forward (3994 JP): Raising Our Rating to Buy. Cash Is King

TOPIX Rebalance: Flows at the Close on 29 June

By Brian Freitas

The third tranche of the FFW methodology change for the Tokyo Stock Exchange Tokyo Price Index Topix (TPX INDEX) will be implemented at the close of trading on 29 June.
One-Way flow is ~JPY 742bn and will be spread across 2170 stocks. The largest inflow will be on NTT (9432 JP) and the largest outflow on Toyota Motor (7203 JP).
Stocks with the largest impact of inflows have outperformed stocks with the largest impact of outflows, but there has been underperformance over the last couple of weeks.

Nidec (6594 JP): Reconsider Strategy & Management

By Scott Foster

Nidec’s share price jumped 6.5% on Friday, June 24, suggesting support near ¥8,000.
Reconsider the company’s future as CEO Nagamori leads the turnaround of OKK and makes machine tools and industrial robots into a new product division.
Nagamori, who will turn 78 in August, is still the Key Man at Nidec.

Subscriptions Provide Growth Model for J Front’s Daimaru-Matsuzakaya

Subscription usage continues to rise in Japan and a new survey suggests just under 50% of teens and 20s plan to use a subscription service this year.
Daimaru-Matsuzakaya’s luxury and designer brand rental business has been so successful that the company had to turn away new members for a while.
The department store’s owner, J Front Retailing (3086 JP), sees subscriptions as a third pillar to its business in the future.

“Global ESG Funds Invest Less in Japanese Equities.” Why Is This?

I would like to discuss about the Nikkei article that says “The number of global ESG funds investing in Japanese equities is low.
The actual substance of their initiatives hasn’t reached certain level, their information disclosure is insufficient for overseas investors, and their investment returns are inferior to those of other portfolio companies.
These improvements can be made by the managers themselves. However, ironically, greenwashing has not been an issue in Japan due to the lack of proactive disclosure of ESG-related information.

Z Holdings (4689) | An Online Goldmine

By Mark Chadwick

Z HD’s media business accounts for 80% of consolidated earnings.
We believe that the combination of Yahoo Japan and LINE is driving new synergies and growth opportunities.
We believe that the media business alone could justify an EV of ¥4.5t, way above ZHD’s current EV of ¥3.5t

Money Forward (3994 JP): Raising Our Rating to Buy. Cash Is King

By Mita Securities

Our new target price 4,000 yen; Raising our rating to Buy
We believe that market participants have become increasingly concerned about the sustainability of high growth for loss-making SaaS companies
We raise our 2Q (Mar-May) FY11/22 sales forecast from 5.102bn yen to 5.145bn yen (+28.8% YoY, company guidance median 4.912 bn yen)

Before it’s here, it’s on Smartkarma

Jun 26

Japan: Alfresa Holdings, Toshiba Corp and more

In today’s briefing:

Alfresa Holdings (2784 JP): Looking Ahead Through 2022–25 Mid-Term Management Plan
Asia-Pac Weekly Risk Arb Wrap: Toshiba, Uniden, Giordano, ResApp, Infomedia, SPH REIT, Toyo

Alfresa Holdings (2784 JP): Looking Ahead Through 2022–25 Mid-Term Management Plan

By Tina Banerjee

Alfresa Holdings (2784 JP) reported revenue decline in FY21. Apart from market wide negative impact of COVID-19 and drug price revision, suspended qualification for public bidding tenders affected the company.
In FY22, the company is expected to be back to its growth path with less impact of bidding suspension and increasing focus on high growth areas.
According to its 2022–2024 mid-term management plan, Alfresa targets to achieve a revenue of ¥2.7 trillion and operating income margin of 1.5% or higher by FY25.

Asia-Pac Weekly Risk Arb Wrap: Toshiba, Uniden, Giordano, ResApp, Infomedia, SPH REIT, Toyo

By David Blennerhassett

There are 49 – mostly firm – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
Two new deals this week: Giordano International (709 HK)‘s low-balled Offer; and Uniden Holdings (6815 JP)‘s MBO. Rumours on Toshiba Corp (6502 JP) also.
Key updates took place for: Resapp Health (RAP AU), Infomedia Ltd (IFM AU), Link Net (LINK IJ), Toyo Construction (1890 JP), & SPH REIT (SPHREIT SP)

Before it’s here, it’s on Smartkarma

Jun 25

Japan: Z Holdings, iShares MSCI ACWI ETF and more

In today’s briefing:

Z Holdings (4689) | The Expanding Opportunity in E-Commerce
Inflation Peaking?; ACWI, ACWI Ex-US Near Support; Many Bottoms-Up Stock Recommendations

Z Holdings (4689) | The Expanding Opportunity in E-Commerce

By Mark Chadwick

Z Holdings has the best ecosystem in Japan with 30% top line growth over the past year
We think that Z HD can out grow the competition in E-Commerce this year by leveraging group synergies
Z HD has earmarked an aggressive ¥35b to grow its Commerce Business this year

Inflation Peaking?; ACWI, ACWI Ex-US Near Support; Many Bottoms-Up Stock Recommendations

By Joe Jasper

Many indexes (ACWI-US,ACWX-US,etc.) are near support, and we could see a bear market bounce, but until these indexes reverse their downtrends and break above resistance levels, we cannot be bullish.
On a positive note, we are starting to see signs that inflation is peaking, as commodity prices have pulled back substantially, and the Energy/Materials Sectors are under significant pressure.
If inflation and commodity prices have indeed peaked, global equities are likely in the early stages of a bottoming process.

Before it’s here, it’s on Smartkarma

Jun 24

Japan: Toyo Construction, Uniden Holdings, Fast Retailing, Tokyo Electron, Tokyo Stock Exchange Tokyo Price Index Topix and more

In today’s briefing:

Toyo Cancels Poison Pill At Last Minute – Range to the Upside
Uniden (6815) MBO – Cornwall Tests Market Norms By Launching a Low-Premium MBO
Fast Retailing: A Breakdown Overdue
Tokyo Electron (8035): Semiconductor Supply Chain at Risk of a Downturn
The Declining Birthrate Makes Us Think About Japan’s Tendency to Postpone Problems

Toyo Cancels Poison Pill At Last Minute – Range to the Upside

On 24 May, Toyo Construction (1890 JP) (TC) came out fighting against Yamauchi No.10 Family Office (YFO), presenting a poison pill and accusing YFO of “extreme dishonesty” despite standstill agreement.
YFO presented hundreds of pages of defence, TC continued to accuse the YFO co-CIO and others of wrongdoing. To me, TC was clearly acting in bad faith.
After ISS and later Glass Lewis came out against TC’s proposal, YFO continued to ask for the PP to be pulled, TC has finally relented. Now we wait some more.

Uniden (6815) MBO – Cornwall Tests Market Norms By Launching a Low-Premium MBO

Uniden Holdings (6815 JP) is a ubiquitous manufacturer in its niche field of CBs, scanners, radar detectors, and marine radios. It used to be famous for cordless phones.
That was then. Manufacturing revenues dropped 90% in 20yrs, there were some weird related party transactions, an accounting scandal, and now the company is fixing itself.
And now value fund Cornwall Capital has launched an MBO at a [checks notes] 2.5% premium to last trade. This is going to be interesting.

Fast Retailing: A Breakdown Overdue

By Oshadhi Kumarasiri

Fast Retailing (9983 JP)’s share price continues to hold at the post 2QFY22 level despite clear signs of weakness in many of its growth markets.
Even though markets have partially priced in the losing competitiveness in the Chinese market, it still believes Fast Retailing can offset that with growth from North America and Europe businesses.
As North America and Europe expose their true colours in the next quarterly results due mid-next month, we expect a much-needed correction to Fast Retailing’s share price.

Tokyo Electron (8035): Semiconductor Supply Chain at Risk of a Downturn

By Scott Foster

Nanya Technology has warned of a downturn that could last to the end of the year. This follows reports of procurement delays in response to excess inventory at Samsung.
Inflation, the Fed’s attempt to kill it with higher interest rates, and the growing risk of recession now threaten not only Tokyo Electron but the entire semiconductor supply chain.
Record capital spending plans should be fully discounted. Potential delays and cutbacks now put a burden of uncertainty on the sector.

The Declining Birthrate Makes Us Think About Japan’s Tendency to Postpone Problems

I would like to discuss this issue because demographics is a very important factor for investment, regardless of whether the issue is directly related to ESG or not.
The government has avoided discussing this issue. The bill for years of neglect in creating environment in which people can safely give birth and raise children is already becoming apparent.
This is the same idea that Japanese management should seriously discuss with investors their vision for future growth, which means that both the government and companies face the same issues.

Before it’s here, it’s on Smartkarma

Jun 23

Japan: Toshiba Corp, JPY, Recruit Holdings, Pola Orbis Holdings and more

In today’s briefing:

Oops, Price Leaks Early on Toshiba – Now We Have To Think About Probability
Could the BoJ Be Saved?
2022 High Conviction – Recruit: More Downside Ahead with Normalisation of Recruitment Markets
Pola Orbis: Pola Moves to Capture Travel Retail Demand as Air Travel Recovers

Oops, Price Leaks Early on Toshiba – Now We Have To Think About Probability

By Shifara Samsudeen, ACMA, CGMA

An article this morning in the Yomiuri suggested JIC was bidding, even though they have not been in any “lists of 8 bidders” I have seen. The market yawned.
An article this evening says bidders are offering “up to ¥7,000/share” but there is a range of pricing and conditions. Not surprising, but we know little.
Shareholder structure matters. This has been event-y for a long time so I expect not many new buyers are ready to come in. This just shifts the range. And risk.

Could the BoJ Be Saved?

By Shyam Devani

Japan is clearly worried about a weaker JPY despite the BoJ’s bond market policy
Could they be saved by external factors – namely a calming down or even reversal of rising US yields?
Historical comparisons as well as developments in commodities and the economy suggests the answer could be yes

2022 High Conviction – Recruit: More Downside Ahead with Normalisation of Recruitment Markets

Recruit Holdings (6098 JP) shares have declined 44.35% YTD as the company’s earnings have started normalising following easing off of Covid-19 conditions.
4QFY03/2022 results showed that the strong growth in earnings that the company experienced in FY03/2022 has started to weaken with normalisation of recruitment and staffing markets.
With weakening earnings, we think there is further downside and Recruit will be a good short over the next few weeks.

Pola Orbis: Pola Moves to Capture Travel Retail Demand as Air Travel Recovers

By Oshadhi Kumarasiri

Pola Orbis Holdings (4927 JP) is expanding its Travel Retail presence in the region to capitalise on the surge in demand from the recovery of air travel.
Inbound demand could also return to Japanese cosmetics through the reopening of Japan’s borders to tourists.
The sector is yet to break out from the downtrend. Investors willing to get in early could do that with Pola Orbis with limited downside risk.

Before it’s here, it’s on Smartkarma

Jun 22

Japan: Toshiba Corp, Shinko Shoji, Sony Corp, NTT (Nippon Telegraph & Telephone) and more

In today’s briefing:

Toshiba (6502) Strong Vs Peers on No News Means Susceptible to Risk On Underperformance
Shinko Shoji (8141) Buyback – Possibly An Interesting Development
Sony (6758 JP): Image Sensors Set for Rebound & Long-Term Expansion
NTT (Buy) – Updated Forecasts and Comments on Telework

Toshiba (6502) Strong Vs Peers on No News Means Susceptible to Risk On Underperformance

Toshiba Corp (6502 JP) sees its AGM next week with new directors and a possible privatisation process ongoing. But the AGM is a done deal and privatisation is not.
The event-i-ness of Toshiba keeps it “supported” while its better-valued and higher-growth peers fall harder in the face of recent overall market weakness.
Toshiba promised transparency on its privatisation process, and so far, it has delivered everything it promised. The next “transparency” likely comes in November.

Shinko Shoji (8141) Buyback – Possibly An Interesting Development

Smallcap semiconductor/component/design/assembly service trading house Shinko Shoji (8141 JP) has been buying back stock. It cancelled 20% of shares out last year. Today it buys back nearly 7%.
The question is, who sells. What one might want to do may depend on who sells. And we will know that in 1-5 days.
The stock itself trades at less than net current assets. The entire market cap and indeed equity is its funding of inventory and net receivables. It’s cheap.

Sony (6758 JP): Image Sensors Set for Rebound & Long-Term Expansion

By Scott Foster

Aided by the weak yen, Imaging & Sensing Solutions should return as a major profit driver in FY Mar-23.
Capacity expansion should help SONY regain image sensor market share over the next 3-4 years.
Participation in TSMC’s foundry project in Kyushu should add to the division’s long-term potential.

NTT (Buy) – Updated Forecasts and Comments on Telework

By Kirk Boodry

NTT has adopted a progressive telework policy that reportedly allows up to 50% of eligible employees (30,000) to work from anywhere in Japan
All telcos are likely to go down this path although NTT stands out as a larger and more traditional domestic company than KDDI or Softbank
We have updated our model for new segment reporting. Our new forecasts support a ¥4,500 target price (March 2023) and we remain at Buy.

Before it’s here, it’s on Smartkarma

Jun 21

Japan: Softbank Group, Tokyo Stock Exchange Tokyo Price Index Topix, Torikizoku and more

In today’s briefing:

Softbank – Director Shuffling At The AGM
Isn’t the Reason for More Share Buyback Disclosures Before the AGMs to Avoid Discussion by Managers?
Torikizoku Holdings (3193): Earnings Forecast Update. Raising Target Price

Softbank – Director Shuffling At The AGM

By Mio Kato

With Softbank’s AGM coming up we examine some of the curious events that surround the firm as usual.
Following in the footsteps of former governance director Yuko Kawamoto, VC founder Lip-Bu Tan has also penned a curious resignation message.
Then there are the continuing questions surrounding Kenneth Siegel and his reappointment is not guaranteed in our view.

Isn’t the Reason for More Share Buyback Disclosures Before the AGMs to Avoid Discussion by Managers?

The Nikkei published an article titled “Share Buyback Program Doubles to 4.2 Trillion Yen.” I would like to discuss the issues in the article.
I’m concerned that the increased disclosure of share repurchases prior to the June shareholders’ meeting may be a way for management to avoid discussing the path to growth with shareholders.
If many companies avoid that discussion and disclose share repurchases for the purpose of ending the AGMs without turbulence, then the question is whether management has a long-term business vision.

Torikizoku Holdings (3193): Earnings Forecast Update. Raising Target Price

By Mita Securities

We update our earnings forecast for Torikizoku Holdings (3193, the company) and raise our target price to 2,500 yen. We reiterate our Hold rating.
On June 10, the company announced 1-3Q FY7/22 sales of 13.260bn yen (-6.9% YoY), OP of -2.583bn yen (-2.588bn yen in 1-3Q FY7/21), and RP of 1.817bn yen (-2.027bn yen in 1- 3Q FY7/21)
We raise our FY7/22 OP forecast from -3.544bn yen to -2.289bn yen (-4.663bn yen in FY7/21), and RP forecast from -575m yen to 2.104bn yen (-315m yen in FY7/21)

Before it’s here, it’s on Smartkarma

Jun 20

Japan: Tsi Holdings, Workman Co Ltd, Tokyo Stock Exchange Tokyo Price Index Topix, Toshiba Corp, Onward Holdings, Sanyo Shokai and more

In today’s briefing:

Japan Apparel Diversification: TSI Tries New Markets
Workman Wins as Decathlon Closes Japan Stores
Certainly the Increase in Share Repurchases Is to Be Commended, But……
Toshiba (6502) Fresh Buy Zone
Japan Apparel Reset: Onward Looks to E-Commerce for Growth
Sanyo Shokai: More Unfulfilled Promises

Japan Apparel Diversification: TSI Tries New Markets

TSI seems to be following a strategy of diversify or die. It is using its vast cash resources to invest in and build new businesses with some success.
But it also has a couple of compelling brands in strong growth sectors, particularly in golf, providing growth of nearly 50% last year in one case.
This isn’t enough to sustain overall growth however and more needs to be done to get on to a more secure footing.

Workman Wins as Decathlon Closes Japan Stores

Decathlon entered the Japanese retail market in 2017 with the opportunity to take a significant share of a growing sports and athleisure sector.
But the French firm is already retreating: it will close its two stores and focus on online and wholesaling.
The market is poorer for but it does leave the market wide open for Workman – which built a consumer chain to combat Decathlon – to become dominant.

Certainly the Increase in Share Repurchases Is to Be Commended, But……

I would like to discuss the points on the Nikkei article, “Acceleration of Share Buybacks Suggests Undervaluation.”
Companies should clarify their capital allocations policy. My analysis shows that companies that raised valuations could articulate capital allocation policies and communicate with investors on growth investment and shareholder returns.
Since information asymmetries between managers and investors exist, attention should be paid to capital allocation. My analysis shows that companies that retired treasury stock 3 or more-times have higher valuations.

Toshiba (6502) Fresh Buy Zone

By Thomas Schroeder

Toshiba bull trend remains intact with buy support at 5,200/300 above the 5,000 bull/bear pivot. Macro PT remains at 6,500.
RSI buy support to gel with the price buy zone. Sell volumes on the pullback have been tepid in line with a correction.
5,000 breakout point is the bull/bear inflection point and the more aggressive buy zone (low odds of being met).

Japan Apparel Reset: Onward Looks to E-Commerce for Growth

All of Japan’s big apparel firms have radically restructured but there is a lot more work to be done.
Onward has done a great job of transitioning to e-commerce but this is not enough to sustain the business and provide new sources of growth.
Trading will improve but slowly and more dynamism is needed in brand development and marketing.

Sanyo Shokai: More Unfulfilled Promises

Sanyo Shokai has posted losses in every year since FY2016 despite promising a return to profit on an annual basis too.
Its latest 3-year plan is typically optimistic but, equally typically, lacks real substance as to just where this growth will come from.
Of all Japan’s larger apparel firms, Sanyo Shokai has the least promising outlook and that is saying something.

Before it’s here, it’s on Smartkarma

Jun 19

Japan: World Co Ltd and more

In today’s briefing:

Japan Apparel Rethink: World Tries Diversification

Japan Apparel Rethink: World Tries Diversification

The outlook for big apparel remains uncertain; most executives are optimistic about a rebound in sales of premium apparel brands, they are also running around looking for ways to diversify.
Despite years of closing stores and a recent re-listing, World Co Ltd (3612 JP) remains in uncertain territory as it tries to boost sales of key brands.
More brands may need to close but the apparel firm is at least investing in new ventures, even if small scale.

Before it’s here, it’s on Smartkarma