Japan

In today’s briefing:

Japan Apparel Rethink: World Tries Diversification

Japan Apparel Rethink: World Tries Diversification

By Michael Causton

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.

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Jun 18

Japan: Monogatari Corp and more

In today’s briefing:

Monogatari Corporation (3097): Evolving from King of Japanese BBQ to King of Food Service

Monogatari Corporation (3097): Evolving from King of Japanese BBQ to King of Food Service

We update our earnings forecast for Monogatari Corporation (3097, the company) and fine-tune our target price to 8,900 yen
Progress toward the company’s full-year guidance was 69% for sales, 41% for OP, and 86% for RP. RP includes subsidy income of 2.656bn yen.
We lower our FY6/22 OP forecast from 5.012bn yen to 3.023bn yen (+18.3% YoY; OPM 4.1%; company guidance 4.798bn yen), but raise our RP forecast from 5.962bn yen to 6.240bn yen (+46.3% YoY; company guidance 5.500bn yen), assuming an upturn in subsidy income

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Jun 17

Japan: Nexon, ExaWizards, Tokyo Stock Exchange Tokyo Price Index Topix, Lasertec Corp and more

In today’s briefing:

Nexon Buyback May Signal End To Near-Term Relative Outperformance
ExaWizards IPO Lock-Up – PE/Investment Funds Coming off Lockup, Could See Some Scattered Selling
Why Japan’s Labor Productivity and Engagement Index Is Low in International Comparisons?
Lasertec (6920) | A Monopoly with a Long Runway

Nexon Buyback May Signal End To Near-Term Relative Outperformance

Nexon (3659 JP) founder Kim Jung Ju tried to sell his holdco in 2019, didn’t, now shares are higher, but he passed suddenly in Q1. The stock popped.
Inheritance tax issues for the estate are complicated, but the buyback just executed might signal a “pause” for a while.
In the meantime, recent underperformance in terms of Peer-relative earnings forecasts suggests the stock could drift.

ExaWizards IPO Lock-Up – PE/Investment Funds Coming off Lockup, Could See Some Scattered Selling

By Clarence Chu

ExaWizards (4259 JP) raised around US$300m in its Japan IPO in Dec 2021, where its IPO had been priced at the top end of its indicative price range.
ExaWizards is an AI service provider in Japan, it develops and delivers AI products with the aim of addressing industry and social issues.
While in our view, we would not expect a large block to come from this lockup expiry, we could expect some scattered selling across the shareholders.

Why Japan’s Labor Productivity and Engagement Index Is Low in International Comparisons?

By Aki Matsumoto

Î will discuss the issues on the Nikkei article, that reports Japan’s labor productivity is the lowest among the G7 countries, and that the “engagement.”
I believe that the lack of wage increases for Japanese workers may not be linked to their enthusiasm for their jobs, showing the OECD data on average annual wages.
Conversely, given wages that are lower wages, well-developed social infrastructure, and a workforce capable of producing a high-quality product, some managers would want to take advantage of this business environment.

Lasertec (6920) | A Monopoly with a Long Runway

By Mark Chadwick

After a 50% fall in the share price, Lasertec looks cheap on an historical basis and trades at a discount to ASML
The secular growth outlook for its extreme ultraviolet (EUV) inspection systems is brighter than ever
Lasertec should be a core holding for Japan growth funds on expectations for continued earnings growth and high returns on equity

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Jun 16

Japan: Kito Corporation, Raccoon Holdings, Inc., M3 Inc, Universal Entertainment and more

In today’s briefing:

Kito (6409) – Now Sitting Pretty
Raccoon: Valuation Has Come Down but The Growth Momentum Remains Strong
M3: Valuation to Further Drop as Earnings Momentum Slows Down
Okada Manila Mess: How to Play This Chaotic Legal Drama Between Universal and Its Ousted Founder

Kito (6409) – Now Sitting Pretty

By Shifara Samsudeen, ACMA, CGMA

Kito Corporation (6409 JP) is under offer by KKR unit Crosby, which announced a takeover in mid-May.
Anti-Trust and foreign review will take a few months, and so we wait. In the meantime, the shareholder register has changed significantly. This remains an interesting option.
And now, global market ructions offer arbitrageurs a meaningful opportunity.

Raccoon: Valuation Has Come Down but The Growth Momentum Remains Strong

By Oshadhi Kumarasiri

Raccoon Holdings, Inc. (3031 JP) is currently maintaining the COVID growth momentum while all others in Japanese e-commerce are face a significant drop-off in demand conditions.
If this outperformance continues, valuation multiples that look somewhat decent today could look cheap beyond any reasonable doubts in a few years.
In addition, if Raccoon succeeds in bringing down advertising spending to the pre-COVID level, the share price could rise above the previous peak of ¥3,300.

M3: Valuation to Further Drop as Earnings Momentum Slows Down

M3’s shares have declined 53.2% over the last 12-months to JPY3,566 from JPY7,613 per share. Share price has lost 15% since 4QFY03/2022 earnings in April.
The company’s Medical Platform business was a key beneficiary of pandemic which saw accelerated transformation in pharma marketing.
However, with pandemic conditions easing off, m3’s earnings growth has begun to decelerate and we think there is further downside with weakening of core earnings.

Okada Manila Mess: How to Play This Chaotic Legal Drama Between Universal and Its Ousted Founder

By Howard J Klein

The Philippine gaming market is recovering fast from covid with the future of hs biggest casino property plagued by legal battles.
Founder Kazuo Okada dismissed in 2017 by the Universal board over his alleged financial self dealing, is seen behind a May 31st strong arm takeover of the property.
The Manila government thus far remains neutral but plans for a Spac IPO by Universal and a US based hedge fund is delayed, but is scheduled to debut by September.

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Jun 15

Japan: Kansai Paint, Softbank Group, Tokyo Stock Exchange Tokyo Price Index Topix, Zenkoku Hosho and more

In today’s briefing:

Kansai Paint (4613) – Huge Buyback Launched
Softbank Group – Semiconductor Weakness Expands Discount
Japanese Companies Targeted by Activist Investors Not Thinking of Cash Allocation, Corporate Value?
Zenkoku Hosho (7164): Capital and Business Alliance with Shisoushin

Kansai Paint (4613) – Huge Buyback Launched

Kansai Paint (4613 JP) today announced a very large buyback.
Given the shareholder structure, the 11.2% buyback may not have the direct market impact that one might think, but there are still ways to play this.
Kansai Paint starts from a near 5-year low against three of four large competitors. And we have accretion and likely cross-holding unwinding. It’s not a bad story.

Softbank Group – Semiconductor Weakness Expands Discount

By Kirk Boodry

Tech weakness has not only eroded the underlying asset value but raised concerns on leverage and the potential for an ARM IPO. The discount expanded by 4pp in one week
The timing and pricing of an ARM IPO looks more precarious as the semiconductor sector fell 13% over two days and is now down 34% from all-time highs
Currency tailwinds have provided some offset with an unprecedented dollar move mimiting downside in Softbank shares to 8% YTD versus a 24% decline for the $-based ADR

Japanese Companies Targeted by Activist Investors Not Thinking of Cash Allocation, Corporate Value?

By Aki Matsumoto

I discuss the article with the argument that “Companies that have moved to take drastic shareholder returns in response to activist investors’ proposals have seen their share prices rise conspicuously.
When the stocks continues to slump and there are no positive factors to be found in a company’s performance, corporate actions such as TOBs and shareholder returns are the focus.
Companies that move aggressively to shareholder returns only after being proposed by activist investors have’t given much thought to cash allocation, cost of capital, and corporate value (shareholder return) before.

Zenkoku Hosho (7164): Capital and Business Alliance with Shisoushin

On June 13, Zenkoku Hosho (7164, the company) announced that it would enter into a capital and business alliance with Shikoku Sougou Shinyou (Shisoushin)
Shisoushin is a guarantee company established as a joint venture of the second-tier regional banks in Shikoku, and is engaged in the business of guaranteeing mortgages and consumer loans
The company now plans to acquire a 19.5% stake in Shisoushin

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Jun 14

Japan: NS Solutions, Yaskawa Electric and more

In today’s briefing:

Is It Really Better for Shareholders if NISSOL Remains a Subsidiary of Nippon Steel Corporation?
Yaskawa (6506) | Further 20% Downside on Higher Rate Cycle

Is It Really Better for Shareholders if NISSOL Remains a Subsidiary of Nippon Steel Corporation?

By Aki Matsumoto

I will discuss the points on the Nikkei article, “TSE Reorganization Leads to Shareholder Proposal: British Fund to Subsidiary of Nippon Steel Corporation.”
Since the parent-subsidiary listing is related to the parent company’s market capitalization, I don’t believe that the issue is one that can be postponed so long.
NSSOL, which maintains stable profitability and cash generation, is expected to see its share price rise further if NSSOL becomes independent and foreign shareholding will increase.

Yaskawa (6506) | Further 20% Downside on Higher Rate Cycle

By Mark Chadwick

Stay short ahead of Q1 results. Full year guidance remains too high and will likely be cut later this year
Yaskawa remains a cyclical stock that correlates with the SOX index – higher interest rates are impacting valuation multiples
We see 20% downside risk towards 3x price to book

Before it’s here, it’s on Smartkarma

Jun 13

Japan: Toyo Construction, Asahi Intecc, KOMEDA Holdings Co Ltd, MonotaRO Co Ltd, Torikizoku and more

In today’s briefing:

Toyo Construction – YFO Standstill Against TC Hostility
Asahi Intecc (7747 JP): Recovery From COVID-19 to Drive Double-Digit Revenue Growth in Near-Term
Komeda Holdings (3543): Solid Wholesale Sales in May; Accelerating Overseas Expansion
MonotaRO (3064): Positive Impression on May Sales
Torikizoku Holdings (3193): Izakaya Earnings No Longer Tricky but Predictable

Toyo Construction – YFO Standstill Against TC Hostility

Three weeks ago, Yamauchi No 10 Family Office (YFO) announced its intentions to launch a Tender Offer by end-June. Toyo Construction (1890 JP) got upset and called YFO names.
TC announced a Poison Pill, they talked, TC accused YFO in the AGM Convocation of “extreme dishonesty.” They have since met again, and finally signed a long standstill agreement.
But the Poison Pill will be put to shareholders (ISS recommends against), and shareholders have to decide from the public documents whether they believe Toyo Construction.

Asahi Intecc (7747 JP): Recovery From COVID-19 to Drive Double-Digit Revenue Growth in Near-Term

By Tina Banerjee

Asahi Intecc (7747 JP) reported 27% y/y revenue growth during first nine months of FY22. For full-year FY22 and FY23, the company expects 22% and 11% revenue growth, respectively.
The company targets a consolidated revenue of more than ¥100 billion in FY26 through continued growth in the existing business and introduction of new business.
Asahi Intecc enjoys dominant market share in PTCA guide wires in major global markets. The company’s direct distribution strategy is further expanding its market share.

Komeda Holdings (3543): Solid Wholesale Sales in May; Accelerating Overseas Expansion

Wholesale sales to franchisees (same-store basis) in May were 109.0% vs. May 2021 (103.7% for April), 146.1% vs. May 2020 (195.1% for April), and 104.3% vs. May 2019 (103.6% for April)
The number of stores at the end of May was 966 (flat MoM). Komeda opened one new store in Japan.
Menu prices were raised on April 1 for company-owned stores and on April 28 for franchise stores. Wholesale price hikes are scheduled in 2H.

MonotaRO (3064): Positive Impression on May Sales

Parent company sales in May were 16.401bn yen (+20.9% YoY), above the company’s monthly target
The number of business days was 19, one day more than in May 2021. The sales growth rate per business day was +14.5% YoY (+23.4% for April)
The negative impact of the Shanghai lockdown appears to be limited so far.

Torikizoku Holdings (3193): Izakaya Earnings No Longer Tricky but Predictable

Sales were 13.260bn yen (-6.9% YoY), OP was -2.583bn yen (vs. -2.588bn yen in 1-3Q FY7/21), and RP was 1.817bn yen (vs. -2.027bn yen in 1-3Q FY7/21)
RP includes subsidy income of 4.404bn yen (vs. 389m yen in 1-3Q FY7/21). Same-store sales growth for company-owned stores was -6.6% YoY.
On April 28, the company raised the price of all dishes from 327 yen (298 yen without tax) to 350 yen (319 yen without tax) at all Torikizoku stores

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Jun 12

Japan: Kito Corporation, JPY and more

In today’s briefing:

Kito (6409) – Shareholder Register Quirks Evolving – Becoming More Arb-Y Less Friendly
USD Punch Higher Ahead of the Fed and Where to Rotate

Kito (6409) – Shareholder Register Quirks Evolving – Becoming More Arb-Y Less Friendly

The Kito Corporation (6409 JP) take-private by KKR which is in process started with an interesting register. It has become interestinger.
One possibly-strategic “pure investment” holder has gone 10+%. A “friendly activist” has gone below. Another large friendly holder sold 4%. Volume since it achieved near-deal-price has been 24.7% of votes.
The register has likely become more arb-y and possibly strategic, and less friendly to Kito, but it is up to the holders to follow up. And there is a warning.

USD Punch Higher Ahead of the Fed and Where to Rotate

By Thomas Schroeder

End of May call to buy the USD vs Euro and JPY and rolled into USD longs vs NZD, CNH, KRW and ZAR. USD rally momentum expanding with EM ignition.
DXY saw a more impulsive push as US yields attempt new chart highs. Gains are expected to accelerate going into the Fed.
EM FX is the space to rotate into USD longs given the lag to register secondary lows. Explosive moves are likely.

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Jun 11

Japan: Tokyo Electron and more

In today’s briefing:

Tokyo Electron (8035 JP): New Medium-Term Plan Vs. Reality

Tokyo Electron (8035 JP): New Medium-Term Plan Vs. Reality

By Scott Foster

Tokyo Electron has announced a new Medium-term Plan that shows what the company could probably do if the next five years were as good as the last five years.
That seems unlikely. The plan ignores rising interest rates, the risk of recession, political risk, and the possibility of demand from South Korea, Taiwan and China maxing out.
It looks like FY Mar-23 guidance is intended to be conservative. That cannot be take for granted.

Before it’s here, it’s on Smartkarma

Jun 09

Japan: HS Holdings, Net Protections, Kura Sushi Inc and more

In today’s briefing:

HS Holdings (8699 JP): Khan Bank IPO Delayed but Path Clear
Net Protections Holding IPO Lock-Up – Small Expiry Now, Before 20% Is Released Later in the Year
Kura Sushi (2695): Aggressive Operations Continued Through 2Q

HS Holdings (8699 JP): Khan Bank IPO Delayed but Path Clear

The saga that has been the Sawada now HS Holdings (8699 JP) effective control change and change in Mongolian Banking Law has been interesting but the end game is clear.
Last week, the Mongolian parliament extended the listing deadline for the top 5 Mongolian banks from June 2022 to June 2023. The IPO has been pushed back. Which is good.
The stock is not what people think it is, and the implied PBR and PER of Khan Bank exposure on a cash-adjusted basis is VERY low.

Net Protections Holding IPO Lock-Up – Small Expiry Now, Before 20% Is Released Later in the Year

By Sumeet Singh

Net Protections Holdings, a buy now pay later service provider, raised around US$570m via selling a mix of primary and secondary shares in its Japan IPO in Dec 2021.
As per Yano Research, it had 40% market share in the domestic BNPL market for B2C transactions.
In this note, we will talk about the upcoming lock-up expiry on 12th Jun 2022.

Kura Sushi (2695): Aggressive Operations Continued Through 2Q

Kura Sushi (2695, the company) announced 1H FY10/22 (Nov-Apr) results, with sales of 89.312bn yen (+19.7% YoY), OP 323m yen (-24.6% YoY), and RP 3.507bn yen (+196.0% YoY)
In Japan, 1H sales were 74.995bn yen (+11.8% YoY) and RP was 3.167bn yen (+69.7%YoY). The number of stores was up +8% YoY
The number of stores at the end of 1H was 593 (+26 from end-FY10/21)

Before it’s here, it’s on Smartkarma